STCs: It’s a cert
Staying up to date with small-scale technology certificates will reduce financial risk for installers and retailers of PV systems. GSES explains.
The Federal Government has created a financial incentive for individuals and small businesses to install eligible small-scale renewable energy systems.
The Small-scale Renewable Energy Scheme (SRES) has made small-scale technology certificates (STCs) available for residential and small commercial solar PV installations up to 100kW.
Rumours had been circulating regarding the effect of STCs on the scope of the scheme and any viability or financial issues. This article outlines recent and upcoming published amendments to the SRES and the implications.
Brief review of STCs
The SRES entitles eligible renewable energy installations to create a certain number of STCs.
These certificates form part of a market mechanism: electricity retailers and generators must purchase a required number of STCs as part of the Renewable Energy Target (RET), thereby giving the certificates a financial value.
STCs can be created upfront for every 1MWh of electricity the system is expected to generate over a certain number of years, called the deeming period.
STCs can therefore provide an upfront cash discount against the cost of the system (often referred to as a ‘point of sale’ discount).
The number of STCs available for the system depends on its size and the resource availability at the site. (For PV systems, this is essentially how sunny the town or suburb is.) The calculation is:
Number of STCs = system size [kWp] x postcode multiplier x deeming period [years].
The person or company purchasing the system holds the right to create STCs. However, the right to create STCs is typically transferred to the system retailer or installer in exchange for a discount equal to the expected value of the certificates.
In either case, the STCs are then sold into the STC market, where they are bought by electricity retailers to meet their RET obligations.
The future of STCs
Suggesting that a discount will soon be dropped is a well-known sales technique.
In an atmosphere of uncertainty regarding government energy policies, several advertisements at the end of 2017 urged home and business owners to buy a system before the ‘rebate’ ended.
Fortunately for the industry, there are no immediate plans to remove the STC incentive scheme.
The long-term plan for the SRES has always been a gradual reduction in the quantity of STCs earned. The deeming period mentioned earlier is the mechanism for this.
The deeming period was 15 years, and it reduces by one year every year after 2016, with the effect of ending the scheme in 2030.
The price of STCs, thus the exact discount that installers can offer customers, varies with STC market supply and demand.
STC supply depends on the number of PV systems installed in a given year, but demand is more complicated.
Demand for STCs is created artificially by the Clean Energy Regulator (CER) as a part of the RET.
The quantity of certificates to be produced each year is estimated and converted to a percentage of estimated total electricity consumption.
Electricity retailers must buy or produce STCs in proportion to the amount of electricity they are responsible for, such that the total number of STCs acquired by retailers equals the initial estimate for the year.
In the past few years STC pricing has been relatively stable, hovering close to $40. However, prices as low as $26 occurred in the latter half of 2017. At the time of writing the price has returned closer to $40.
Price volatility means that the effect of fewer STCs can be magnified by low STC prices or negated by higher STC prices.
The decrease in STC price in 2017 was caused by an imbalance between the supply of STCs and the demand (ie: predicted supply). More certificates were produced than expected, thereby pushing down the selling price.
In other words, STC pricing depends on an accurate prediction of the number of new systems installed.
It is important to note that although the STC target set by the CER is a component of the legislated RET, the 33,000GWh renewable energy generation target by 2020 is specific to the large-scale renewable energy target scheme (LRET).
STC creation is expected to continue until 2030, as specified in Table 1. The STC targets and associated market structure should be maintained in their current form until the scheme ends in 2030. However, the long-term STC price and scheme operation may still be affected by changes in energy policy.
Apart from the annual reduction of the deeming period there have been changes to the SRES and RET rules and regulations.
In recent months, the CER has clarified the eligibility for STCs of system upgrades.
If a system is upgraded with increased capacity, that extra capacity is eligible for STC creation, provided that the whole system meets Australian Standards and the CEC guidelines applicable at the time of the upgrade.
For some systems, this may mean replacing or upgrading the wiring and/or components.
Clarification was also provided on eligibility of replacement panels for STC creation.
Previously, it was possible to replace panels on a PV system that had received STCs and create certificates for the replacements.
This was contrary to the aim and methodology of the SRES. Systems get credit upfront for their expected production over 15 years (or less). When panels in this system are replaced, the energy generated by them should not be considered ‘additional’.
Removing the panels early and claiming STCs for their replacements is akin to doubling up on the deemed generation. After 31 January 2018, STC applications for systems with replaced panels will no longer be considered if the systems have received certificates.
10-100kW PV systems and LGCs
Until 2018, PV systems with a rated capacity of 10kW to 100kW and annual generation of 25-250MWh could be in the SRES or the (LRET).
The LRET makes up most of the RET and allows renewable energy generators to create large-scale generation certificates (LGCs) for each megawatt of electricity produced on an ongoing basis.
These are then sold on a separate and often more lucrative market, albeit a volatile one.
However, participation in the LRET has additional requirements, such as gaining accredited power station status and ongoing reporting obligations.
There have been issues with meeting additional administration and compliance requirements for systems under 100kW. The legislation Renewable Energy (Electricity) Amendment (Exemptions and Other Measures) Regulations 2017 thus removes the option to participate in the LRET for all PV systems with installed capacity of 10kW to 100kW that were installed on or after 1 January 2018.
STC market pricing and the year-to-year reduction in certificate creation can affect system costs for consumers, but the SRES ‘rebate’ is not in immediate danger of ending.
However, it is essential to keep up with changes to the regulations that may affect the eligibility of particular systems for the intended RET schemes.
Staying up to date with trends in the STC market will also reduce financial risk for the installers and retailers that quote customers for PV systems inclusive of an STC discount.
Note that not all PV systems can get STCs, only systems designed and installed by those with Clean Energy Council accreditation.
GSES offers training courses that enable electricians to obtain design and installation accreditations, and certain qualified individuals (eg: electrical engineer) to obtain a design accreditation.
For more details visit https://www.gses.com.au/training-courses/national-courses