The solar power industry is looking to the Federal government to provide some assurance over the price of Renewable Energy Certificates (RECs), known as Small-scale Technology Certificates (STCs) for smaller, residential systems under the Enhanced Renewable Energy Target (eRET) Scheme, according to an article in the Sydney Morning Herald. This article is a brief overview as to why.
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As we have written previously, STCs are in effect a type of currency, one certificate of which is created for each megaWatt-hour (MWh) of solar power capacity (calculated over the lifespan of your system) that is installed. Depending on your region and the amount of sunshine that it gets (i.e. your “REC zone“), the number of STCs you would receive for having a solar photovoltaic power system installed varies. A set number of STCs/RECs must be bought and surrendered by certain ‘liable parties’ (usually pollution-intensive industries and power generation companies) at the end of each quarter in order to avoid financial penalties.
STCs/RECs can either be created and traded on the REC market by the owner of the solar power system or sold through the STC Clearinghouse (see below). Often, however, solar power installation companies guarantee their customers a set price for the STCs/RECs created when their system is installed as part of an up-front discount that greatly shortens the payback period (return-on-investment as the system saves you money and ‘pays for itself’) of the system. Under the federal government’s Solar Bonus Scheme, for the first 1.5kW of solar power capacity that you install on your home, you are also eligible for a REC Multiplier, which, if you install a system before 1 July 2011, will entitle you to 4x the number of RECs you would otherwise be entitled to. This means that ‘phantom RECs’ which do not represent real installed solar power system capacity are being created–in April at a rate of more than one million per week, according to SMH–as people rush to take advantage of the 5x credit before it reduces to 4x.
The STC Clearinghouse set up by the Office of the Renewable Energy Regulator (ORER) that guarantees $40 per REC/STC (provided there is a willing buyer) notwithstanding, the value of RECs/STCs is market-based, which means that it fluctuates in accordance with supply and demand. The recent and sharp uptick in home solar PV installations, most notably in the year 2010, has lead to a flood of STCs in the market, driving their price down from $37 in January 2011 to a current (as of late April 2011) price of $31. Opposition spokesman on climate action, Greg Hunt, has called for the governing coalition to take action to avert a crisis.
The Federal government has indicated that it will look into finding a way of reducing the volatility of the STC market and to mitigating the effects this destabilising boom-bust cycle, possibly by setting limits to the number of certificates that can be created, but it is unclear what effect this will have on the nature of the REC scheme, if it is indeed implemented.
The current ‘boom’ state of the solar power industry is also attributable to the generous state-specific solar feed in tariffs, the strong Australian dollar, and the decreasing price of solar power systems. In fact, even with the talk of REC market volatility, thanks to these other factors in combination, there has still, historically speaking, never been a time during which installing a solar power system has been more affordable, and the solar power industry is not likely to disappear or collapse any time soon.
Written by James Martin
© 2010 Solar Choice Pty Ltd
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Previous related Solar Choice Blog entries: Enhanced Renewable Energy Target : Calculating your solar credit discount : Solar Credit Multiplier to decline from 1 July 2011 : State-by-state Feed-in Tariffs : Ever-improving technology dilemma