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Australian Energy & Environmental Market Update - November 2023

Australian Energy & Environmental Market Update - November 2023

The latest summary edition of our monthly Australian energy & environmental market update is now available. Keep reading for energy and carbon pricing movements, policy updates and other news.

Australian Energy & Environmental Market Update - November 2023

Australian Energy & Environmental Market Update November 2023 - summary edition

This month we cover energy and environmental market movements, the expansion of the Capacity Investment Scheme, early highlights from COP28 and VCMI's new guidance for its Claims Code of Practice.

Keep reading for an overview of key market developments and a discussion of the impact of these announcements. 

The full version of the update, with additional commentary from our industry analysts, is available to paid subscribers. Contact our team to find out more.

Highlights for November 2023

Australian electricity and gas pricing

  • Spot markets were higher in November than October, averaging $72/MWh in QLD, $85/MWh in NSW, $34/MWh in VIC, $60/MWh in TAS, $43/MWh in SA.
  • Some planned and unplanned coal outages lead to higher spot pricing in the first half of November.
  • However, prices remained below the 12-month rolling average.  
  • Gas markets firmed across the month, before coming off ~20% in line with coal generators returning and higher renewables generation.
  • Gas prices closed at $7.90/GJ in NSW, $9.20/GJ in QLD, $10.02/GJ in VIC and $9.81/GJ in SA.

Carbon and environmental markets

  • ACCUs picked up slightly to $31.50/cert in November, driven by an increase in demand from the Safeguard Mechanism proponents.  
  • LGCs reacted significantly to the expansion of the CIS, before quickly recovering, with the spot market closing at $46.90/cert. Cal27 vintages and beyond softened the most as the CIS aims to increase supply in these later years.
  • STCs re-entered a surplus for the first time in over 12 months, as submissions remained lower and carrying rates increased with increased interest rates. STCs closed at $39.30/cert at the end of November.

For a comprehensive update on the ACCU market, read our ACCU Monthly Market Report here.

In other news

  • The Australian Government has announced the expansion of the Capacity Investment Scheme in a landmark announcement, committing to underwrite 32GW of new renewable energy and storage capacity.
  • COP28 commenced on 30th of November in Dubai with discussions held in the context of the first-ever Global Stocktake, an assessment of our collective progress against goals set under the Paris Agreement, and the basis of the course correction needed.
  • VCMI has released additional guidelines for its Claims Code of Practice to provide companies with a clearer pathway for making claims on their use of high-quality carbon credits.

Features

Feature 1

32GW Expansion of the Capacity Investment Scheme

The Australian Government has announced the Capacity Investment Scheme (CIS) will be significantly expanded to introduce 32GW of new capacity by 2030.

This scheme was expanded on the 23rd Nov 2023 with 9GW of dispatchable capacity and 23 GW of variable capacity nationally, approximately 50% of the NEM’s current capacity

This scheme aims to decrease financial risk for investors through the following mechanism:

  • Revenue ‘floor’ which will help cover debt repayments by guaranteeing a certain revenue level, with the Government paying the difference when revenue falls short
  • Revenue ‘celling’ where additional revenue beyond the ‘celling’ will be shared between the developer and the government at an agreed percentage.

These tenders will be awarded through a ‘reverse auction’ model where projects will bid in at the lowest possible price to be underwritten.

  • This underwriting is designed to reduce the risk of default on debt and hence reduce the interest rates they receive on this debt, increasing the viability of the project
  • By flooring and capping revenue, the anticipated costs of hedging is expected to decrease as well, further improving the viability of these projects

The first tender will be in April 2024, with the aim to contract approximately 8GW per year

Further detail on the scheme is yet to be announced.

Feature 2

COP28


COP28 commenced on 30th of November, where representatives from 198 member states under the UNFCCC gathered in Dubai for the world's largest climate conference.

The 28th annual Conference of Parties (COP) under the United Nations Framework Convention on Climate Change (UNFCCC) commenced on the 30th of November in Dubai.  It is due to conclude on the 12th of December.

The event is not just about negotiations between countries. The vast majority of the nearly 100,000 delegates are representatives of companies, non-profits, youth and Indigenous groups all wanting to make meaningful climate progress. This included our CEO, Chris Halliwell, who was at COP28 as part of the Carbon Markets Institute (CMI) delegation.

This year's COP was centered around the delivery of the first-ever Global Stocktake, an assessment of our collective progress against goals set under the Paris Agreement, and the basis of the course correction needed.

The key themes discussed include:

  • Discussions to bring forward the phase-out of fossil fuels.
  • Operationalising Article 6.4 of the Paris Agreement which allows for trading of emissions reduction between countries under the supervision of the UNFCCC.
  • Further propelling the investment in and roll-out of renewable energy

As the event wraps-up we will have further clarity on the key outcomes and next steps which we will cover in a separate insight article. However, in the meantime here are some early highlights:

  • 118 member states agreed to triple global renewable energy capacity to at least 11TW by 2030, and a doubling of energy efficiency improvements by 2030.
  • The launch of Alterra – a $30 billion climate investment fund - that aims to attract a further $250 billion of investment by 2030.
  • 39 countries supported the UAE Hydrogen Declaration of Intent designed to accelerate hydrogen trades.

CORE Markets CEO & Co-Founder Chris Halliwell at COP28

Feature 3

VCMI updates Claims Code

The VCMI has released additional guidelines for its Claims Code of Practice to provide companies with a clearer pathway for making claims on their use of high-quality carbon credits.

The Voluntary Carbon Market Institute (VCMI) released an updated guide to its Claims Code just hours before the start of COP28.

It provides a clearer framework for companies making claims about their use of high-quality carbon credits under the Claims Code.

The latest guidance builds on the foundational criterial released in June 2023 and includes:

  • The Monitoring, Reporting and Assurance (MRA) framework that enables companies to make Silver, Gold, or Platinum claims on their use of high-quality carbon credits (credits that are aligned with ICVCM’s Core Carbon Principles) to make beyond-value-chain mitigation contributions.
  • A new brand and associated mark for 'Carbon Integrity', which can be used by companies making the claims.
  • The beta version of the ‘Scope 3 Flexibility Claim’ framework, allowing companies to make limited use of carbon credits to close the emission gap between its Scope 3 emissions reduction targets and its actual Scope 3 emissions, while increasing its internal decarbonisation efforts and investment.
    Guardrails are in place to avoid the misuse of this scheme and ensure that reduction initiatives continue.

In the words of Mark Kenbar, Executive Director of VCMI:

“Today’s release of additional guidance means that the VCMI Claims Code of Practice is ready for use and companies can now directly make claims against it. ​​We encourage all businesses to show ambition, make a claim and accelerate global net zero.” ​​

What this month’s developments mean for Australian business

  • The expansion of the Capacity Investment Scheme (CIS) has been described as the most important energy policy shift in more than a decade. It's a bold step aimed to secure the national 82% renewables target by 2030.

    The CIS provides a collar type pricing structure, with a price floor and a price cap.

    It will provide revenue certainty for developers, ensuring that projects are bankable and consequently increasing ability to attain finance.

    Prices provided by the CIS are unlikely to be sufficient to meet the required returns of most projects. As such, projects will likely need secondary market PPAs or significant merchant revenues to make an appropriate return.

    While the total supply of projects should increase because of the CIS, it is unclear if all projects will look for offtake. Some projects may look to take on merchant risk and some traditional developers will still want PPAs.

    It’s important to note that the scheme’s impact will not be seen by the market until 2028 onwards. Renewable energy projects are complex and take time to build.

    In the meantime, we will continue to experience tightness in renewable energy supply. We already know the renewable energy pipeline for the next 3-5 years.

    Therefore, organisations who – like the Government – have a renewable energy target before or in 2030, also need to act now. Contact our specialist renewable energy market advisors today.
  • In the Australian carbon market prices continued to trade mainly sideways. While there is some increase in Safeguard Mechanism participation, many organisations are still working through their strategies before they actively engage the market.

    Our transactions and advisory teams, however, continue to see heightened activity on the primary market as a growing number of organisations look to secure long term supply.

    The expected growth in Safeguard Mechanism demand and the ongoing development of voluntary carbon market frameworks are expected to increase competition for high-quality projects over time.

    Forward-looking organisations are creating their carbon sourcing strategies and models today, even as their internal emission reduction efforts continue.

Do you need help navigating renewable energy and carbon markets?

The events outlined in this month's update highlight the evolving nature of carbon and energy markets and the complexity of the net zero transition.

To discuss your unique requirements, get in touch with our team today to see how we can help.

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Australian Energy & Environmental Market Update - November 2023

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December 11, 2023

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