Australian Energy & Environmental Market Update - March 2024

Features

‍

Feature 1

Value on emissions reduction added to ISP

AEMO will put a value on emissions reduction for the first time in the final 2024 ISP when it is released in June of this year.

AEMO has confirmed that they will put a value on emissions reduction for the first time in the final version of the 2024 ISP, due out by the end of the financial year.

Pricing, which comes from the AER’s guidance, begins at $70/tonne in 2024, increasing annually to $105/tonne by 2030.

These values arise from the IPCC’s cost of abatement figures.

Valuing emissions comes as a direct consequence to the AER’s amendment of the National Energy Objective (NEO), where a reference to emissions reduction was included for the first time in September of last year.

To date, the ISP has had an implied carbon cost through a carbon budget, which caps the aggregate emissions out to 2030.

• By adding in a value of emissions reduction, this gives greater visibility on the economic impacts of emissions.
• Both the value on emissions reduced and the carbon budget will be incorporated in the 2024 ISP.

‍

Feature 2

Summary of CIS consultation session

The Australian Government hosted a consultation webinar to provide further details on the Capacity Investment Scheme, which will underwrite 32 GW of new capacity.

On the 8th of March, the Australian Government hosted a consultation webinar to discuss details of the recently-announced Capacity Investment Scheme (CIS). Here are the key findings:

The government will essentially underwrite 23 GW of variable renewable energy and 9 GW of “Clean Dispatchable” energy, by topping up a certain percentage of revenues below a nominated floor, and clawing back a certain percentage of revenues above a nominated ceiling.

Revenue top-ups are contingent on assets meeting availability and minimum performance requirements.

The government will run tender processes every 6 months, with the first tender for 6 GW of generation capacity due in May of 2024.

The submission process entails 3 steps:

• Project Bid Assessment – Bids are assessed against project eligibility criteria (e.g. project deliverability, contribution to system reliability)
• Financial Value Bid – Shortlisted proponents are assessed on a financial basis.
• Due Diligence – proponents disclose all relevant data to DCCEEW, including existing PPAs.

Top-ups and claw-backs are made post all revenues, including PPAs, green products and ancillary services revenues. The CIS is not anticipated to impede on the contracting market.

Settlement is quarterly, with a true up completed annually.

‍

‍

What this month’s developments mean for Australian business

• ‍The monthly average electricity spot price fell materially in March across all regions of the NEM, except in South Australia. Despite the marked reductions in the spot market, Futures electricity prices remained steady.
  
  In addition, volatility and the price bands in each state varied significantly.
  
  All of the above indicates that contracting needs to be carefully considered on a state-by-state basis and there is no one-size-fits-all approach.
  
  This complexity needs to be understood by both buyers and sellers to achieve optimal commercial outcomes.
  ‍
• The Australian carbon market saw a 16.83% increase in the volume of ACCUs traded and significant volatility in the spot price for Generic ACCUs  As the volume of trades in the market continues to grow materially, in line with expectations, the market continues to be sensitive to market news and developments.
  
  This highlights the importance of having access to up-to-date market data and insights. Organisations with exposure to the carbon market need to ensure they have the expertise to differentiate between market noise and fundamentals.

‍

‍

Do you need help navigating renewable energy and carbon markets?

The events outlined in this month's update highlight the evolving nature of carbon, environmental 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.