A reflection of both concerns of regulatory change
In the forward market, an escalation has applied within the current quarter of in the order of 3.5-4 per cent. Yet beyond that the backwardation of the curve (which has been present for some time) remains; a reflection of both concerns of regulatory change as well as a recognition of the presence of the $40 price ceiling. While a relatively modest discount has applied to Q4 (which currently sits around the $38.50 mark) subsequent periods are yielding lower prices with Q1 2015 at $37.85 and Q2, Q3 and Q4 2015 all around the $37.65 mark.
For now the Small-scale Renewable Energy Scheme appears well supported with Labor, the Greens and the Palmer United Party all throwing their weight behind it and maintaining a position of ‘no change’. The Abbott Government has felt the full force of both industry lobbying efforts (with a marginal seat campaign) as well as strong public support for a scheme which underpins a labour intensive industry. Yet significant regulatory risks still exist for the STC market given the control in several key areas that the Minister/Government can exercise without requiring a majority in both houses (i.e. via changes to regulations). These include the power to reduce the Clearing House price, the ability to reduce the number of STCs created per installation (either by the introduction of a multiplier of less than one, or via a reduction in the deeming period) as well as the ability to change the definition the maximum system size eligibility.
Changes in each of these areas have the ability to significantly impact the industry, with any alteration to the Clearing House price destined to directly impact on STC prices and all of them likely to greatly affect installation levels and STC supply.
Despite the prospect of these changes, or perhaps directly because of them, the forward market beyond Q3 has been active with participants seeking to provide some certainty for the businesses moving forward. In exchange for this certainty buyers have asked for a discount to reflect the potential of a reduction in the Clearing House price. In many cases, creators of STCs have been prepared to take that discount to give themselves a foundation for Q4 and beyond.