As part of its role in operating the Scheme, the Scheme Administrator monitors supply of and demand for certificates. The Scheme Administrator does not undertake forecast modelling, but projects supply of certificates based upon knowledge of existing participants, future project accreditations, applications for accreditation, and where necessary, some conservative assumptions.

The projection of supply and demand is sensitive to small movements in some of the key factors used in determining the NSW and ACT greenhouse gas benchmarks. At the time the projections below were calculated (30 June 2009) there was continued uncertainty around the architecture and timing of commencement for the proposed national Carbon Pollution Reduction Scheme, and therefore the probability of future certificate creation levels. The Scheme Administrator expects that as the framework for a national scheme is further developed and the policy environment becomes clearer, the projections of supply and demand may change. In addition, the recent commencement of the NSW Energy Savings Scheme (ESS) on 1 July 2009 may also further affect the supply and demand projections below.

For further discussion around the supply and demand projections, refer to the Report to the Minister, July 2009, Compliance and Operation of the NSW Greenhouse Gas Reduction Scheme during 2008.

Assumptions in projection

The projection of the demand and supply of certificates is based on a number of conservative assumptions as follows:

The volume of certificates created from a number of energy efficiency projects peaked during 2008 and will be significantly reduced in the latter half of 2009 due to changes to the DSA Rule, which now only allows on-site generation to create DSA related NGACs. Other energy efficiency activities previously eligible under the DSA Rule now form part of the NSW Energy Savings Scheme which commenced on 1 July 2009.  

Projection results

The annual supply scenarios have been prepared based upon the Scheme Administrator’s knowledge of the potentially variable sources of supply for certificates. The following is a brief description of each.

The projected demand is depicted by a single scenario which is based on the 2009 key factors published by the Scheme Administrator on 14 November 2008.

While the legislative amendments to the Act in 2006 allow the Scheme to continue operation beyond 2012, given the implementation of a national emissions trading scheme in or around 2011, the Scheme Administrator has chosen a projection timeframe that extends to and is inclusive of the 2012 compliance year only.

Projected annual demand and supply of certificates (as at 30 June 2009)

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All projections depict a supply that peaked in 2007 declining through to 2009, after which supply increases to 2012 in scenarios two and three, but remains static in scenario one.  This peak in 2007 was created by the strong growth in abatement from energy efficiency project activity accredited under the DSA Rule in the years 2005 to 2007, particularly those relating to CFLs.  This growth fell significantly in late 2008 following an amendment to the DSA Rule, with very minor or no activity occurring in the first six months of 2009 (prior to commencement of ESS).  However, underlying this significant reduction in supply, due to commencement of ESS on 1 July 2009, is an expectation of continued steady growth in abatement under the Generation Rule, with several large scale future projects beginning operation from 2010 onwards.

Scenario One shows a marked decline in annual supply from 2007 onwards due primarily to progressive reduction in CFL related NGAC supply and commencement of ESS in July 2009, with supply remaining static after this date.  Marginal decline in supply from 2010 onwards is also attributable to a number of generation projects ceasing to create NGACs due to expiry of power purchase agreements (PPA), but is counter-balanced by marginal supply increases from other generation projects via efficiency improvements or increased capacity.

Scenario Two also shows a similar decline in supply from 2007 to 2009, however supply then increases from 2010, due to implementation of currently accredited Future Projects being commissioned.  Assuming these Future Projects commence as scheduled, they will offset any reduction in supply resulting from the expiry of PPAs.

Scenario Three, which includes all current applications for accreditation, suggests that reduced supply from energy efficiency, PPA expiry and DSA Rule changes will be largely offset by an expected increase in certificate creation from new projects accredited under the Generation Rule.  However, this supply curve assumes that all existing accreditations (aside from energy efficiency) will continue largely unchanged until at least 2010, all current applications will be accredited, and all future projects, whether accredited or in application stage, will commence as scheduled.

The demand for abatement certificates is expected to rise to a peak during the calendar year 2009 compliance period, after which it is expected to decline.  The rise can primarily be attributed to:

• the NSW Greenhouse Gas Benchmark holding steady at 7.27t CO2-e per capita, while population and electricity demand increase,
• a steady increase in the NSW Pool Coefficient is expected (average intensity of emissions in CO2-e gases per MWh of electricity), and
• the two year lag adjustment on demand in calendar years 2009 and 2010, as a direct result of the high level of DSA NGAC creation during 2007 and 2008.

Demand is projected to decline after 2009.  While the per capita benchmark remains steady after this time, population is predicted to rise faster than demand for energy; and the Renewable Power Percentage will continue to rise (meaning benchmark participants can surrender a greater number of RECs in place of NGACs).

Under Scenario One, annual supply of certificates is generally less than, or close to, annual demand from 2009 onwards.  However, certificates do not expire, and a certificate created with a particular vintage may be surrendered against a compliance obligation for any year thereafter (for example, a certificate of 2004 vintage may be surrendered against a compliance obligation in any year from 2004 onwards).  It is likely therefore, that in Scenario One the surplus of supply experienced in the first six years will assist in meeting the projected demand from 2009 onwards.  The number of certificates that are available for surrender can be found in Table 6.4 in the report Compliance and Operation of the NSW Greenhouse Gas Reduction Scheme during 2008.

Under Scenario Two, supply is less than annual demand in 2009 and 2010, but has risen above demand in 2011 and 2012.

Under Scenario Three, supply is less than annual demand for 2009 only, after which supply climbs sharply above demand.

However, the nature of the assumptions around transition to a national emissions trading scheme illustrates the uncertainty of these supply scenarios.

New sources of abatement certificates

There are a number of future projects either accredited or being assessed as applications under the Generation Rule. While it is expected such projects will be a strong source of new supply, some future project accreditations have experienced delays and in some circumstances have been withdrawn some time after accreditation. The Generation Rule is projected to be the main source of certificates into the future.

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