Energy certificates in hot water

Australian
Monday 27/4/2009 Page: 25

AUSTRALIA'S most active carbon market the trade in Renewal Energy Certificates has been particularly busy in the past two weeks, although its price has eased slightly below $50 under the weight of new certificates generated by the rush to solar hot water systems. The listed company UXC said on Friday it was generating more than 10,000 RECs a week from its solar hot water installations and had locked in sates of $28.7 million to three energy retailers.

But a more significant event for the REC market, and the energy industry in general, will occur this week when the COAG meeting is expected to decide on whether and by how much to raise the REC penalty price the sum utilities must pay if they don't meet their quotas under the Government's planned 20/20 renewable energy target.

The idea of increasing the penalty from its current level of $40 per MW/h to $50 or more is that it provides extra incentive for energy utilities to buy renewable power, but it has major implications for the various aspiring energy sources, and how they might fill in the demand created by the RET. The biggest winner will be wind, because many projects are ready to go and the higher penalty would probably make some of the marginal propositions economic and so spark a rush of new projects.

It should also be good news, at least in theory, for some of the newer and more expensive technologies such as solar thermal and wave energy. The one exception might be the geothermal industry, which reckons it can compete with wind on price, and certainly on efficiency, and some participants are concerned that their ability to fully exploit the benefits of the RET will be crowded out by a gust of wind projects.

Finally, there is the gas industry, which, UBS analyst David Leitch noted last week, will find itself in ever increasing competition with wind rather than coal should be penalty price be increased.