State of the solar industry: Clean Energy Regulator publishes Q1 2021 Carbon Report

Published: 27 July 2021

The Clean Energy Regulator published its Quarterly Carbon Market Report on June 24, 2021, which shows excellent results for Q1 and a promising outlook for the rest of the year.

Australia has become a global leader in renewable energy, with 7 gigawatts of wind and solar power installed in 2020. The year was excellent for the rooftop solar market in particular, with 362,000 installations that added 2.7 GW. Renewable energy sources accounted for nearly 30% of generation in the National Energy Market during Q1 2021. The Clean Energy Regulator published its Quarterly Carbon Market Report on June 24, 2021, which shows excellent results for Q1 and a promising outlook for the rest of the year.

The Clean Energy Regulator has contributed to the growth of renewable generation, and emissions reduction projects in general. The agency manages three different programs, each with certificates that act as financial incentives:

  • The Small-scale Renewable Energy Scheme (SRES), which uses Small-scale Technology Certificates (STC).
  • The Large-scale Renewable Energy Target (LRET), which uses Large-scale Generation Certificates (LGC).
  • The Emissions Reduction Fund (ERF), which uses Australian Carbon Credit Units (ACCU).

How the Clean Energy Regulator supports renewables

Solar power and other renewables get STCs or LGCs depending on the installation size, at a rate of one credit for every 1,000 kWh. In the case of solar installations, STCs are awarded up to 100 kW of capacity, and larger projects get LGCs.

  • STCs can be claimed upfront, before the project starts operating, based on an estimate of the accumulated generation by 2030. 
  • On the other hand, LGCs can only be claimed for actual generation that has been measured and verified.

ACCUs are used for carbon abatement projects, at a rate of one credit for every metric tonne of CO2-e captured or avoided. As of Q1 2021, most carbon abatement projects that earn ACCUs are focused on vegetation (59%) and waste management (27%).

Project owners can sell these certificates to organisations with a legal obligation to support renewable energy and carbon abatement in Australia. They are also purchased voluntarily by some corporations and local governments. This cash flow represents an incentive for project owners, and the three certificate types finished Q1 2021 with the following prices: $38.85 per STC, $33.25 per LGC, and $18.50 per ACCU.

The latest report from the Clean Energy Regulator is very promising, since there was growth in all three programs during Q1 2021, and there is a positive outlook for the rest of the year. Together, the three programs are expected to save 57 million tonnes of CO2 equivalent by the end of 2021 – a 7% increase from 2020.

  • The SRES could save 15.8 million tonnes CO2-e (12% increase)
  • The LRET could save 24.3 million tonnes CO2-e (6% increase)
  • The ERF could save 17 million tonnes CO2-e (6% increase)

The 57 million tonnes estimate is conservative according to the CER, and the actual emissions avoided could reach up to 75 million tonnes.

The success of rooftop solar in Australia

The first quarter of 2021 was great for rooftop solar power in Australia, with 101,000 individual installations adding up 792 MW. For comparison, there were 83,000 installations and 609 MW in Q1 2020. The average installation size also increased in the same period, from 7.5 kW to 7.8 kW. The Clean Energy Regulator estimates that rooftop solar installations could reach 4 GW of capacity in 2021 alone.

  • The leading states in Q1 2021 were New South Wales (258 MW), Queensland (200 MW) and Victoria (151 MW).
  • The growth of rooftop solar was also considerable in Western Australia (97 MW) and South Australia (69 MW).
  • The reported growth was smaller in the Northern Territory (3 MW), Tasmania (7 MW), and the Australian Capital Territory (12 MW).

Australia created 988,800 STCs per week during the first quarter of 2021, which represents a weekly incentive of around $38 million for small-scale renewables. The program is expected to end 2021 with a surplus of 14.5 million STCs, even after all mandatory and voluntary purchases.

Home solar power in Australia has been growing at an average rate of 39% per year since 2017. In Q1 2021, the total investment in rooftop solar was $701 million – $483 million in systems up to 15 kW, and $217 in larger installations. At the current pace, Australia could exceed 20 GW of capacity by 2025. Solar batteries are still an emerging technology, but each year they are being installed in more homes – 2,100 were deployed in Q1 2021.

Outlook for commercial and industrial solar

Solar power projects larger than 100 kW get LGCs instead of STCs, and growth has been more modest in this market segment. However, Australia met the Large-scale Renewable Energy Target (LRET) during Q1 2021: producing 33,000 GWh from projects covered by the program, within a 12-month period. This milestone was achieved for the first time in the period from February 2020 to January 2021, with 33,100 GWh generated.

39 power plants were accredited under the LRET in the first quarter of 2021, and this includes solar installations larger than 100 kW. While this is much less than the 792 MW of solar power from the small-scale program, the outlook remains positive for the rest of the year:

  • There were 118 project applications by the end of Q1, adding up 875 MW.
  • Renewable generation projects under the large-scale program could reach 2.5 GW by the end of 2021, and solar power could reach up to 325 MW.
  • The total capacity of projects that are currently backed by a Power Purchase Agreement was 3.7 GW by the end of the quarter. The next steps for these projects are reaching financial close and starting construction.

The Large-scale Generation Certificates (LGC) generated during 2021 will be enough to meet all mandatory and voluntary purchases, according to the Clean Energy Regulators. However, a tight balance between supply and demand is expected.

Solar power is already being deployed by the three largest supermarket chains in Australia: Coles Group, Woolworths Group and ALDI Stores. All three have a net-zero emissions target by 2050. In addition, ALDI Stores is aiming for 100% renewable energy by the end 2021, while the other two supermarket chains have established that target 2025. In total, the three corporations have deployed 62 MW of solar power across 436 stores.

The Emissions Reduction Fund (ERF) does not cover projects that get incentives from other government programs. Since solar power systems are already eligible for STCs or LGCs, depending on their size, they cannot claim Australian Carbon Credit Units (ACCUs). However, the ERF also had excellent results in Q1 2021, with a record of 44 projects registered.

Conclusion

The Clean Energy Regulator has played an important role in Australia’s renewable energy industry, providing financial incentives through the SRES and LRET programs. Both programs award a sellable certificate for every 1,000 kWh generated, and this improves the cash flow projection and return on investment. These certificates are purchased by organisations with a legal obligation, including electricity retailers, and also voluntarily by some companies and institutions – these purchases become incentives for project owners.

The rooftop solar market was very active in the first quarter of 2021, with over 100,000 installations and nearly 800MW, drawing an investment of over $700 million. According to the Clean Energy Regulator, Australia could add 4 GW of rooftop solar capacity to its power grids by the end of 2021.

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