| 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 is sensitive to small movements in some of the key factors used in determining the State and Territory greenhouse gas benchmarks. At the time of the projections below were calculated (23 January 2008), there was significant uncertainty around the architecture of the proposed national emissions trading scheme and therefore the probability of future certificate creation levels. The Scheme Administrator expects that, as the framework for a national scheme is developed and the policy environment becomes clearer, the projections of supply and demand may change.
The Scheme Administrator cautions persons against making decisions based upon the supply/demand projections depicted.
Assumptions in projection
The projection of the demand and supply of certificates is based on a number
of conservative assumptions as follows.
- Mid range estimates of electricity demand, NSW and ACT population
growth, and the NSW/ACT pool coefficient.
- The NSW Pool Coefficient is projected to continue to increase in response
to the continuing drought conditions in NSW.
- Projection of distribution loss factors is based on the actual weighted
average from the returns of 2006 calendar year benchmark statements.
- The TransGrid Annual Planning Report 2006 revised downwards future
electricity demand (see Table A3.1 of the TransGrid 2006 Annual Planning
Report, available at www.transgrid.com.au/Annual_Planning_Reports.htm),
which in turn has decreased projected demand.
- The number of RECs counted (only RECs associated with electricity purchases
in NSW and the ACT can be counted) is anticipated to rise incrementally based
on expected increases in electricity demand and the renewable power
percentage (see the Renewable Energy (Electricity) Regulations 2001 (Cth)). No allowance has been made for changes to the Mandatory Renewable Energy Target announced during the 2007 election campaign.
- Queensland Generators eligible to create Gas Electricity Certificates (GECs)
under the Queensland 13% Gas Scheme will prioritise GEC creation over
NGACs. This assumption is based on the price differential between GECs
and NGACs. Limited history to date suggests GECs will trade at a higher
value than NGACs.
- A number of projects newly accredited to create NGACs in 2006 are also
accredited to create RECs. Similar to projects accredited in the Queensland
13% Gas Scheme, these Generators must choose between creating an NGAC
or REC, for each eligible MWh of generation. In the case of these generators,
it was assumed that future NGAC creation behaviour is reflective of the
maximum number of NGACs each generator has nominated in their application
for
accreditation.
- The volume of certificates created from a number of similar energy
efficiency projects will have peaked in 2007 and will decline significantly from 2008 onwards. It has been assumed that from 2010 onwards, owing to
announced changes with regard to the use of incandescent light bulbs,
accredited energy efficiency projects will no longer achieve the abatement
of previous years.
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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 detailed description of each.
- Scenario One: The projected supply of certificates in this scenario is
based on the abatement expected to be achieved by existing
accreditations only, and excludes all future projects. This scenario is
the low-range projection.
- Scenario Two: The projected supply of certificates in this scenario
is based upon the abatement expected to be achieved by existing
accreditations, including all accredited future projects. It is assumed
that the accredited future project will commence abatement activities
as anticipated by the project proponent. This scenario is the mid-range
projection.
- Scenario Three: The projected supply of certificates in this scenario
includes all accredited ACPs, accredited future projects (including the
assumption that commencement of operation will be achieved as scheduled
by the project proponent) and all current applications for accreditation. This scenario is the upper-range
projection.
The projected demand is depicted by a single scenario which is based on the 2008 key factors published by the Scheme Administrator on 20 November 2007.
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 2010, 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 23 January 2008)
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All projections depict a peak in supply in 2007 owing to the likely continuing
abatement occurring under the DSA Rule from energy efficiency projects.
After the 2007 peak, supply trails downwards as projects in energy efficiency
are assumed to decline significantly after 2009. Furthermore, in Scenario One
from 2010 onwards, a number of generation projects terminate due to expiry
of power purchase agreements (PPA), causing a further decline in annual supply.
Scenario Two has the same downwards projection to 2009; however, the
implementation of currently accredited future projects commences at approximately
the same time. Assuming these future projects commence as scheduled, they will
offset any reduction in supply resulting from the expiry of PPAs.
Scenario Three, which includes applications for accreditation (including future
project applications), suggests that reduced supply from energy efficiency and
from PPA expiry will be largely negated. However, this supply curve assumes that:
- all existing accreditations will continue
largely unchanged until at least 2010,
- all current applications will be accredited,
- all future projects, whether accredited or in application stage, will
commence as scheduled, and
- no companies (other than those generation project noted above) exit the Scheme.
The demand for abatement certificates is expected to peak in the 2008 compliance period and remain high in 2009. This rise can primarily be attributed to:
- the reduction in the State Greenhouse Gas Benchmark for 2007 to
7.27t CO2-e abated per capita,
- the 2007 benchmark must be fully met by all benchmark participants
without any allowable shortfall in 2007,
- a steady increase in the NSW Pool Coefficient is expected (average
intensity of emissions in CO2-e gases per MWh of electricity), and
- a large number of DSA NGACs in 2006 and expected in 2007 pushed up demand in 2008 and 2009, owing to the
process in the Compliance Rule by which energy savings are added
back into state demand with a two-year lag.
Demand is projected to decline after 2009 due to the reduced creation of NGACs
under the DSA Rule. While the underlying factors that affect NGAC demand,
such as population and electricity demand, continue to place upward pressure
on demand, their influence in earlier years (2007-2009) is not as pronounced
as the effect of NGAC creation under the DSA Rule.
All projections indicate that certificate supply for 2007 will exceed the annual
demand, while in 2008 and 2009 demand will exceed the supply. However, it is important to note that as
certificates are bankable, the surplus of supply experienced in the first five
years will largely meet the projected demand in these two years.
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, future project accreditations have experienced
delay and in some circumstances 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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