Engaging in domestic carbon and energy markets · Web viewObviously, ongoing rooftop PV is a large factor around that. And so, the replacement cost for the alternatives of transacting

Transcript: Engaging in domestic carbon and energy markets

Gloria Karaiskos: Great! Hi, everyone! Welcome to today’s seminar. This is the second in our two-part virtual series on participating in Australia’s carbon markets to meet your corporate climate goals. We’re very pleased here at the Carbon Market Institute to bring you this series and increase your knowledge of carbon markets here in Australia, as well as highlight opportunities available for you to engage further in the market, wherever you might be on your climate journey.

And today, we bring you our second seminar in Series 2 which is all about carbon market strategy, trading, and procurement. Last week, we had a look at the business case for setting corporate climate goals and carbon goals with stories from some of the leading organisations about their various operations and activities, including the Australian government’s rigorous carbon neutral program, Climate Active.

So, today we’ll be focusing on domestic carbon and energy markets, sharing with you some market perspectives and practical insights from developers, brokers, and traders, all with experience in carbon, energy, and environmental markets. We’re also going to hear from Clean Energy Regulator about the key regulatory systems and how they operate to support and facilitate market activity.

This is a great opportunity for you to engage with our panelists and ask all those questions you’ve been wanting to know the answers to when it comes to accessing markets, and also how to go about engaging and connecting with the right people and the right organisations. As always, there’s a Q&A function which you’ll see on your screen now just down the bottom. It is open and you can send through your questions at any time during today’s seminar. Together with the other panelists, we’ll do our best to answer them either by written response or during the Q&A which will follow each of our presentations today. Also, feel free to like any of the questions which will help us get to those most popular ones first during the discussion.

And also, if you’ve missed any of our prior seminar series or want to revisit some of those really insightful discussions and presentations that we’ve had, a reminder that the recordings are now available on our CMI website on our Carbon Conversations page. A really good educational resource for anyone wanting to know more about carbon markets and also some of the key developments and opportunities emerging.

So, let’s kick things off today. As you can see here, our speakers for today. We’re first gonna hear from the Clean Energy Regulator. As I mentioned, he’ll take us through some

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of the key systems to be aware of and how they work to support you with your market activities.

We’ll then have three presentations from some advisors, developers, and traders, all operating in the carbon, energy, and environmental marketplace. We’re joined by CO2 Australia, who has been in the carbon game for many years; TFS Green and the Renewable Energy Hub, who are connect buyers with renewable energy products as well as environmental markets; and Green Energy Trading, who, amongst various things, have a specific focus on their renewable energy target [inaudible] certificate markets.

So, to start the discussions today, I’d like to hand over to Shakir Rahman, who is the acting assistant manager in the economics, analysis, policy, and markets, and data team on the Clean Energy Regulator. He’ll provide an overview of the regulatory systems in our domestic marketplace.

Thanks, Shakir! I’ll pass it over to you now.

Shakir Rahman: Thank you, Gloria! And welcome, everyone, from a rather gloomy day in Canberra today. I’ll just quickly populate my screen.

So, today my presentation is how to engage in domestic carbon and energy markets. But before I get started, a disclaimer that Clean Energy Regulator is not a financial advisor. The information I’m providing today is for general information only.

With that out of the way, though, let’s have a look at what I’ll cover today. So, today I’ll take you through some of the recent market trends that we’ve observed, particularly, in the Voluntary Carbon Markets space. I will then talk about the Clean Energy Regulator’s architecture for transacting in domestic carbon units and energy certificates. In particular, looking at the registries we administer, which are the Australian National Registry of Emission Units or ANREU, and the Renewable Energy Certificate Registry or REC Registry. And finally, I’ll provide some information on the data and publications that we make available to the market.

I’d like to start my presentation by acknowledging that this has been a very difficult time for everyone including businesses and corporations, but what has been very encouraging to see is that climate action has not taken a backseat during these uncertain times. In fact, we are seeing an increasing number of businesses and corporations committing to ambitious emissions reduction targets and starting to act on these targets.

Some of the recent developments include Telstra achieving carbon neutral certification for its operations, and Shell Australia, the oil and gas major, has also been investing in clean energy more recently acquiring Select Carbon.

We’re now starting to see the impact of these commitments and actions on a domestic carbon market through the voluntary surrender of Australia carbon credit unit or ACCUs, and large-scale generation certificates or LGCs.

So, now let’s have a look at the voluntary surrender of ACCUs and LGCs over the last two years. Now, I know this is a bit of a busy graph, but if you look at the voluntary surrender volume in the first two quarters of 2020, you’ll notice a significant increase in activity there. In fact, surrender volume of these [inaudible] certificates in the first half of 2020 is over four times of that surrendered in the first half of 2019 – so, that’s a pretty significant growth there.


And it has not slowed down at all. It has continued in quarter three. So, just popping in the quarter three numbers there of what we’ve seen to date. The surrender volume that we have seen in LGCs in July and August to date, as you can see, dwarfs what we have seen in recent quarters. The large peak there for LGCs is primarily from surrenders made by the ACT government to demonstrate the achievement of the 100% renewable energy target.

And while the volume of ACCUs surrenders have been fairly low in recent months, we still think we’re on track for 750,000 ACCUs to be surrendered in 2020, which will be a 57% increase from last year.

Now, to take a step back, if you’re a business wanting to start on an emissions reduction journey or even rethinking our strategy, the schemes we administer can help you. Depending on the nature of your business there are different approaches you can take. This infographic here on the slide here shows in broad strokes some of the steps you can take to reduce or offset your emissions. Now, whichever option you’re going for, though, dealing with ACCUs and LGCs will involve interacting with the Clean Energy Regulator registries which are the ANREU for ACCUs and REC Registry for LGCs and STCs. And that is really what we’re focusing on our presentation today.

So, to give you a bit of a background, we have been operating our registries for over eight years now, and they provide a robust and secure architecture to transact in carbon credits and renewable energy certificates. In our registries, it can hold, sell, or surrender your energy certificates – surrender being an important function, as that is how you demonstrate that you have achieved your carbon neutral goals.

So, let’s have a look at our registries in a bit more detail. So, first cut of the rank is ANREU. ANREU is a secure electronic registry to track location and ownership of ACCUs and other emission units issued under the Kyoto Protocol, such as the Certified Emissions Reduction Unit, or CER.

To access an ANREU account, you will need to register through the Clean Energy Regulator Client Portal and fulfil their security requirements. Once we have an ANREU account, a range of functions will become available to you, and these include transferring and receiving ACCUs and other Kyoto units to and from your account.

You can hold ACCUs and other Kyoto units in your account. ACCUs can also be surrendered for Safeguard Mechanism. ACCUs and other Kyoto units can also be voluntarily cancelled from your account.

Additionally, if you’re participating in the ANREU scheme, you can be issued ACCUs in your account. Also, if you have a carbon abatement contract under the ERF, it can deliver ACCUs against this contract from your account.

Now, if you are looking to register for a ERF project, we advise that you apply for an ANREU account concurrently. The application process can take up to 90 days to complete, and although most applications are processed a lot quicker.

Now, another point I wanted to make is that ACCUs can be cancelled or surrendered on behalf of others in ANREU. So, for example, under the Safeguard Mechanism, a responsible [inaudible] can nominate an ANREU account for ACCUs to be surrendered


from. Account holders in ANREU can also voluntarily cancel ACCUs and Kyoto units on behalf of others.

And the final point I’d like to make is that the Australian government does not charge to open an ANREU account, nor do we charge to transact within ANREU. It’s a free service for everyone.

Now onto the REC Registry. It is also an online system and it facilitates transaction of renewable energy certificates, which are large-scale generation certificate or LGCs, and small-scale technology certificates or STCs. Through this registry, you can track ownership and status of these certificates by accessing a number of public registries – such as the register of LGCs, STCs, accredited power stations, and a few others.

Now, you do not need to have a REC Registry account to access these public registries. These are freely available to access through the registry interface. However, if you’re wanting to create, register, transfer, or surrender LGCs and STCs, you will be required to register for an account. You can apply for an account to the REC Registry interface and this process is separate from the ANREU account application process and can take up to six weeks to complete. But again, most applications are processed quicker.

Now, there are different types of REC Registry accounts depending on your requirement as a participant and each account gives you a different level of access. If you’re only wishing to transfer and voluntarily surrender certificates, then a general account will suffice, and there is no fee involved in creating a general account or for transferring and voluntarily surrendering LGCs.

However, if you’re wanting to create and register certificates, you will need to create a registered person account. There is a fee involved with the creation of this type of account, and also for registering certificates in the REC Registry.

You can find information on the different account types and their associated functions on the REC Registry account application page, and also on our website.

So, that is a quick look at our registries, and I hope that was useful, especially for new to assistance. Now, the next point I’d like to make is that we are committed to improving our clients experience with our online systems and create transparency in the market. And with that goal in mind, we continue to upgrade and add new features to our systems.

One such feature that I wanted to highlight today which was introduced earlier this year is the ability to track provenance of ACCUs in ANREU. Transactions in ANREU now include links to projects where transacted ACCUs have been generated from. Project information for these ACCUs can then be accessed to verify provenance through those links.

If you have purchased ACCUs and they have been transferred into your account, you can use this feature to verify that the project details match with what you agreed with the seller. And this can particularly be useful to verify that carbon credits you buy originate from projects that have delivered [inaudible] benefits, for example.

Now, a similar feature to track source of LGCs is also available, and that is available to the public register for LGCs and accredited power stations, which can be accessed via the REC Registry interface.


Now, if you have been voluntarily surrendering and cancelling offset and renewable energy certificates, we make this information available via our website registries. Voluntary cancelation of ACCUs and other Kyoto units are published on our website. Voluntary cancelations of LGCs are accessible again through the LGC register via the REC Registry interface.

Now, along with the voluntary cancelation publications, we also published a range of data information on a regular basis, and this is really to help the market operate more efficiently and increase transparency. In the ERF space, we publish the ERF project and contract registries with access with identification of projects that may have ACCUs available for purchase.

In the REC space, our regular publications include list of accredited power stations, small-scale post-code installation data, registered persons and holding holdings summaries for LGCs. And these are all published on our website.

Starting with Q3 of last year, we have also been publishing a Quarterly Carbon Market Report. This is our flagship report that consolidates market information for both offset carbon units and energy certificate market. We continue to engage the market and provide information that the market may find useful through this report.

And just quickly, I want to show you an example of this. So, the slide here shows the breakdown of ACCU holding aggregated by market participants. And this is something we’re looking to publish, next Quarterly Carbon Market Report. The legislation prohibits the publication of ACCU holding at an individual account level, however, we are publishing aggregated holdings in response to interest from the market and to increase transparency. And that is really an indication of the level of service we are looking to provide to the market.

The final point I’d like to make is that the CER registries are not like an exchange trading platform. Instead, transfers need to be prearranged. Information to assist sourcing ACCUs and LGCs are available on our website, but there also a number of brokers and market service providers that can help you with sourcing units and certificates, and they can also surrender on your behalf which can simplify the process.

So, I think I’ll leave it there. Now, we’re keen to hear feedback on the publications and the data that we make available to you. So, if you want to reach out to the Economic Analysis team at the Clean Energy Regular, you can email us at [email protected].

Thank you for listening. Over to you, Gloria.

Gloria Karaiskos: Thanks, Shakir! That’s great! A great update on the information available to market participants. And that quarterly market report is actually a really great read. I know I might be a little bit biased but do check it out. It’s got a lot of information in there relevant for all those in the market. So, thanks for that.

I’d now like to introduce Aaron Soanes, who is the CEO of CO2 Australia. CO2 Australia is a leading environmental services company with a very long history in developing into the green carbon projects all throughout Australia.

So, I’ll pass over to you now, Aaron, for an update on the market activity that you’re seeing.


Aaron Soanes: Thanks very much, Gloria! I hope everyone can hear me okay. I’m calling in from Cairns in Far North Queensland. And my heart’s going out to everyone stuck in COVID lockdown around the country.

Yeah, so, CO2 Australia. I’ve only got 10 minutes to chat, so I don’t have many points to touch on. I’m going to introduce my company and I’m going to talk about a few bright spots at the very broadest level when it comes to, actually international domestic carbon and energy markets.

So, CO2 Australia in a nutshell – that graphic is a range of our current clients with varying degrees of engagement. We’re a company of about 20 people. We’re based around Australia. Since our company began, we’ve planted about 48 million trees. So, apparently that’s about 2.4 million trees per person, and I personally haven’t planted that many. So, we’ve got a mix of foresters, ecologists, environmental scientist, and of course the very important carbon accounting specialists. We’ve been operating since 2004. That makes us one of the oldest or most experienced carbon project developers in Australia.

As you can see from the graphic, we work with a wide range of partners, from conservation agencies including Parks Victoria and New South Wales National Parks and Queensland National Parks to large resources companies. We strive to drive industry best practice by setting a benchmark in commercially viable projects that deliver benefits for the people, the environment, and at the same time, sequester carbon.

As such, resultingly, we’re proud of what we’ve achieved in delivering a number of firsts here in Australia. We were the first company, actually to generate ACCUs from our woodside planting, which was, yeah, one of their many firsts. We were also the first carbon project developer to be declared carbon neutral under the Climate Active, formerly known as the National Carbon Offset Standard, and that occurred last year. And I’ll talk more about that shortly.

And we have 38 registered emission reduction fund projects, all associated with the land sector. Vegetation, revegetation, human-induced regeneration, and plantation forestry methods.

So, we’ve also established and currently managed. So, it’s important to understand that CO2 Australia’s work has been about establishing these forests and then also being engaged for the long-term to manage both the carbon aspect and the ongoing pursuable cultural management of these forests.

We’ve established and managed about 30,000 hectares across Australia, and in addition to our revegetation work in the carbon sector, we also work with the resources industry in the biodiversity offset sector, which is – I won’t go too far down that rabbit hole, but we’ve got about 60,000 hectares of biodiversity offsets under our belt and about 100,000 hectares in the pipeline.

We are an ERF agent, an advisor. We do project design and delivery, as outlined. And of course, that very important ongoing management of these estates. We are a public company – we aren’t listed. We have about 30,000 shareholders.

I wanted to show you this slide to talk a little bit further around about the Climate Active organisational standard that CO2 Australia has achieved. And this slide also goes to, I guess, the ethos of CO2 Australia as a member of the Foundation Signatory to the


Australian Carbon Industry Code of Conduct. And this, I guess, for want of a better term, marketing approach to Fair Dinkum Carbon.

So, CO2 Australia, this particular photograph is of a 20 Million Trees Project, which was funded by the commonwealth government. We’re working on national parks land in northern New South Wales. And that’s one of our staff members there with some local Aboriginal people, doing a TAFE course in conservation management. And we work with the TAFE, national parks, and of course, the commonwealth to deliver this project.

So, we established around 400 hectares within the Dthinna Dthinnawan National Park, which working within a national park requires a very high level of technical capability, as you can imagine. It’s on public land, conservation estate. So, it’s some of our favourite work.

And the whole idea of [inaudible] carbon – when CO2 Australia became carbon neutral, we didn’t utilise cheaper, although very high quality, international credits under the Climate Active or National Carbon Offset Standard. We used our own ACCUs and ACCUs from other Australian projects to offset CO2 Australia’s emissions.

This is a graphic of our environmental services engagement around Australia since we’ve commenced operations. In the southeast of the country, that is dominated by environmental plantings work, as is the case in southern Southwestern Australia. So, in the southern WA. Moving into Queensland, into human-induced regenerations projects and that biodiversity offsets work. Moving into Far North Queensland with environmental advice. It’s the same as in the northern territory.

In very simple terms, what CO2 Australia does as a company – we are engaged by our clients to establish and manage carbon sequestration systems, whether they be forests or under the plantation forestry methodology or under the human-induced regeneration process. We establish those projects, we pay the landholder to do those projects on those lands, and the client, of course, gets the carbon credits in whatever form.

We drink a lot of cups of tea with a lot of farmers around Australia. This gentleman, Paddy Reardon, had some belts of carbon plantings integrated into his grazing and cropping system, which both yielded agronomic rewards for him as well as a capital injection to his business, and the ongoing environmental benefits of those plantings for his operations.

This is another example not far from Paddy Reardon’s place on a property called the Mines near [inaudible] where we’ve established a whole range of different types of integrated belt plantings on a particular property to manage a whole range of different environmental issues.

Recently, we’ve been investing off the CO2 Australia balance sheet into establishing small-scale plantings in far north Queensland in the catchment of the Great Barrier Reef. We see great potential for flagship-type projects for corporations around Australia and the world to do revegetation within the catchment of the Great Barrier Reef. Very important rainforest systems associated with the Great Barrier Reef, we think has some real positives for the generation of ACCUs.

This is one of our staff pretending to do some work in this photo, but it’s an LRF project that CO2 Australia has been engaged by the Queensland government and working with


SEQ Water and the World Wildlife Fund to establish 270 hectares of forest around the catchment of Wivenhoe Dam, which is Brisbane’s water supply.

So, you can see the real emphasis on utilising public lands with private capital. The capacity to make the requirements of those public land agencies as well as great environmental outcomes. This particular planting area is a koala hotspot. In southeast Queensland, koalas are under extreme pressure, so this has got some a really great story around the project.

Imminently, CO2 Australia will be making some announcements. We’re currently in negotiations with the Land Restoration Fund. Around five or six projects, some of which are in Far North Queensland, one in Southern Queensland, or one or two in Western Queensland. So, the range of those projects will be divulged, but it’s associated with regeneration and human-induced regeneration projects.

These offer our insights into working with both private and public landholders. We see this as a great gateway for third-party corporate investment in doing some really cool environmental stuff.

So, I just wanted to, now that you’ve heard a little bit about CO2 Australia, go quite global and talk about the bright spots in the energy markets and carbon markets. I guess, it’s a level of care that I try to link anything that’s happening with the European Union to what’s happening in here domestically. But I thought it worthwhile bringing to the attention, and some of you may already be across this sort of thing, but the EUA price reached basically an all-time high in mid-July. And at the end of July, there was – at least when I last checked it, it was still at 27 euros per tonne.

So, since mid-March, that’s been a 79 per cent increase. Whilst at the same time, of course, though this COVID. And I think that’s a record for me talking and not mentioning COVID in a presentation per se. It’s almost at an eight per cent contraction. Huh? How the hell does that happen? You would assume that with decreased economic activity, there’s reduced amounts of emissions, to put it basically. But what’s underpinning that increase in price is the steam administrators identifying the importance of this sector to the economic well-being of the European Union.

The administrators are looking at reduced allocations because it’s a cap-and-trade system. Also targeting unused allocations. They’re also toggling with their per cent targets, maybe going to 55 per cent. That’s sending some great signals to the market. They’re also looking at widening the European Union scheme to focus on transport, commercial buildings, but even down to domestic buildings as well, which is really underpinning the value of the trading scheme to European economy.

And I think Mark Lewis said it better than I could, associated with this story, which was in the Financial Review online, when he said that, the confidence in the market and a commitment that Europe has taken to a low-carbon future is really positive. The 750 billion euro recovery fund has a really strong green push on it. As you can see those figures there, I don’t need to repeat those to you.

And in 2008-09, the last financial crisis, the whole climate sector was too hard to deal with in their recovery processes but now it’s seen as an essential part of their economy, and it’s a real bright spot to see that.


I guess from an Australian perspective, we have seen some really positive things happening. And of most recently that’s been quite positive is the Australian Industry Energy Transitions Initiative. Some of Australia’s biggest corporates have signed up to this initiative – I congratulate them – focusing on attaining carbon neutrality in their operations by 2050. And its federal government fact – backed, I should say – by ARENA. And it is an opportunity for Australia’s corporate sector to actually work together towards achieving these results. Obviously, from a service provider like our perspective, we think that’s a great thing and we, yeah, fully support what’s going on there. And hopefully that will flow through to some improved prices on ACCUs.

So, why is that happening in this COVID constrained, let alone carbon constrained economy at the moment? The consumer is putting companies under pressure. In this region, in Far North Queensland, for example, the experiential dollar spend is a large part of the tourism sector. Even though that’s been belted by COVID, there’s still a demand out there for greener, more environmentally sustainable businesses and opportunities for the younger person spending money, and it’s really driving change. And as part of the initiative, there is a real focus on efficient use of energy in their production systems, and this represents a fantastic opportunity.

It’s $160 billion per year. Those industries represent as part of the Australian economy, and yeah, we see these sectors having a fantastically bright future, not only a spot.

So, an outline of what I’ve spoken to you about today – I’m not sure how I’m running on time. We’ve been around for a while, we’ve got industry connections and relationships, we are a leader in revegetation carbon projects. I’ve been doing it since 2004. History though, is no indicator of success, as we all know, for our company or the energy markets more broadly. And there is a positive outlook. Thankfully, our history with the ups and downs of various carbon schemes in Australia will hopefully start to look positive from this point on.

I think there is [Coughs] pardon me – real opportunity abounds for investment from the corporate sector, and most importantly, it’s going to have real environmental improvements as a result of that investment. The carbon market is a real draw for the introduction of corporate dollars to really have a positive impact on our environment. That’s it!

Gloria Karaiskos: Thanks, Aaron! That’s great! It’s really nice to have those. There’s bright times ahead, and certainly a changing marketplace for us working in this area. It’s also really good to see the on-the-ground activity there, and as Shakir has shared with us some of the transparency indicators in the market registries, but, I mean, those pictures there really just paints a picture of what actually is happening on the ground. So, thanks for those insights there.

I’d now like to shift across to our energy market, and I’d like to welcome Chris Halliwell who is from TFS Green and the Renewable Energy Hub. He’s the APAC manager for renewable energy and environmental markets. So, I’ll just hand over to Chris now for his presentation. Thanks, Chris!

Chris Halliwell: Thanks so much, Gloria. Hi, folks! And welcome to Friday lunchtime carbon conversations. Fabulous to be here. It’s an exciting time in the sense, amidst a lack of any sort of regulatory framework to coerce much activity, I think we’re seeing some real leadership and some real independence coming from the industry and coming from consumers alike,


and we’re starting to see some real momentum in that space in the absence of any sort of regulatory framework.

And this is evolving in a number of forms. I guess, it’s both in the context of climate change action but both as corporates see the economic benefits of taking a step on their journey into low-carbon transition.

So, I just wanted to take a little bit of a snapshot of a menu of some of the options for which corporates and industrials can participate in this low-emissions transition process. So, to touch a little bit on the Renewable Energy Hub ourselves, looking at clean energy procurement as one of those options, both PPAs on-site and off-site, and then looking at offset-type solutions where buyers can purchase from the LGC market, the domestic carbon market, and some of those options.

The next slide please, Gloria. So, Renewable Energy Hub is part of the TFS Green Group. And TFS Green is a large financial services provider. Been in market for 20 years providing services in the global energy and environmental market areas. It had a very busy time in that space, and different areas of the market have flourished for different reasons at different stages. Of course, looking now at the European carbon chapter, it was a very burgeoning international carbon market. More recently, some of the activities returned domestically to Australia as we see different drivers for corporates participating in these markets.

The Renewable Energy Hub business is a specialised business designed to deal with some of the unique and bespoke requirements of commercial and industrial energy buyers participating in the emissions market and the clean tech market. And that team there is providing all manner of services around procuring and transacting clean energy and emissions solutions for your business. Next one…

So, three main categories we look at in our zero-carbon strategy; PPAs. Looking at the renewable energy certificates as a comparison and an alternative to the practical complex PPA transaction. And then of course, the carbon markets and what’s available there. And the correlation between these three solutions that’s trending at the moment.

Next one, Gloria, please.

So, firstly, PPAs – a lot of activity in this space. There’s been a boom of activity across the sector over the last two to three years. Now, this has been by the function of consumer-lead organisations really getting on the front foot, wanting to take some action in relation to climate change and out there hitting some renewable energy goals. Perhaps, that RE100 top member that’s looking to achieve some targets by say 2025 target.

This has been a very meaningful collection globally and a lot of this activity in Australia has been a function of that group. But there is, of course, a big portion of this activity that is made up just of energy buyers that are looking for alternatives in terms of energy hedging. Capturing some of the price opportunities whereby, if you sign on for a PPA for a longer tenure directly with a wholesale generator, you can capture some real price improvements. Now, that was certainly the case when electricity prices and LGC certificate prices were very high over the course of the last three years, but those prices having now corrected somewhat, it’s interesting to look at the correlation between this alternative and other alternatives such as purchasing LGCs or carbon offsets, and how we’re seeing trends switch between those three solutions as the price signals diverge.


Next slide please, Gloria. So, PPA structures without going down the rabbit hole on some of the complexity of these types of transactions, these fall into a couple of main buckets. There’s the wholesale virtual contract where essentially, you’re doing a financial contract with a wholesale generator and you take on, you know, the moving parts of that transaction in terms of variable volume for that generator as the sun shines and the wind blows, and the variable exposure of the spot price to which it generates against.

The second of which is perhaps a more de-risk option, where you’ll find a pricing solution in a premium for a retailer to de-risk some of the moving parts of that transaction and package it up potentially as a retail supply agreement.

And this is broadly the two different types of ways these transactions have been undertaken in the market today. Of course, PPAs do exist behind the meter as well, and that sort of goes into a different proposition for those that have large daytime consumption and plenty of roof space. There’s a very burgeoning behind-the-meter PPA market, and that is driven by different economics when you take into account your behind-the-meter consumption.

Next slide please, Gloria. So, I guess the reason that we may see a transition in the uptake of this option as opposed to some of the other options for achieving your zero-carbon strategy goals, because the price signals are changing, and we’ve seen a dramatic correction in the wholesale electricity price over the course of the last 12 months. This is happening for a number of reasons, but partially due to the significant in-supply of renewable energy over the last two years, and that was likely driven by high energy and LGC prices. I’m sure Tristan will go more into that.

The energy price has calm down dramatically over the course of the last 12 months, and therefore some different solutions are now looking competitive. You can see here, the correction is quite dramatic both in terms of the wholesale electricity prices, but also how competitive it is now to look at variable PPAs as a low-cost energy solution. The energy price remains suppressed and that may be partially a function of demand being reduced in a COVID environment. We’re seeing energy demand has had somewhat of a downturn as the industrial-type facilities are reducing their energy reduction. And so, we’re seeing suppressed prices across the course of this year.

Obviously, ongoing rooftop PV is a large factor around that. And so, the replacement cost for the alternatives of transacting directly with a renewable energy alternative are becoming quite striking. Now, of course, options are now prevailing as this market becomes more sophisticated, whereby you can participate in transacting directly with a renewable energy generator without having to go through the full complexity of undertaking a complex PPA transaction, committing yourself a long time, and dealing with setting up a lot of the bespoke pieces of that puzzle. Of course, that space has evolved very dramatically over the course of the last three years and we’ve seen a good cross-section of energy retailers supporting these types of solutions.

Next one please, Gloria. A big part of these transactions is the LGC certificate that you can obtain as per megawatt hour of the generation you would purchase from a renewable generator. Now, these LGC prices have dropped away quite dramatically over the course of the last year. This graph looks at the forward annual contracts that see the spot price there tracking quite high and correcting in the future years. It’s strengthening somewhat, but obviously, a lot cheaper.


Now, this is a result of the 2020 volumetric target being the peak demand point of the renewable energy certificates, and that drove certificate prices quite high. In that instance, to purchase an LGC as an offset as opposed to doing a PPA didn’t really look that attractive with certificate prices that high. As we tick over now into increasing oversupply in that scheme as more projects come online and bring more LGC certificates into the market, the price has really softened off. And so, the alternative of looking at LGC certificates purchased as an offset against your conventional retail supply electricity becomes quite a compelling alternative. Much lower transaction costs, much more basic procurement option, and doesn’t involve all the moving parts and risk factors that may be involved in a complete virtual PPA-type transaction.

Next one please, Gloria. Now, domestic carbon process have largely been governed over time by the ERF auction process. Most volume gets transacted into that facility and we see limited activity yet consistent activity in the spot market and the forward contract market bilaterally, between voluntary purchases or traders or different portfolio managers and aggregators.

We’ve seen the spot price climb up. And now, generally, in correlation with when the, you know, safeguard mechanism type voluntary buys, or and the voluntary buys, should I say, are coming into the market. And tracking in-line at the moment, you know, about on the balance with where the ERF auction would clear.

Now, if we overlay that price progression with where the LGC price currently sits, you start to observe that the LGC, as an alternative to carbon price domestically, it looks quite attractive for the time being. Now, of course there’s no sort of clear regulatory framework that would suggest the two should correlate, or that an LGC certificate necessarily qualifies as a carbon offset under, say the Climate Active scheme, but it’s certainly something we could anticipate as a logical progression on a regulatory level, that these LGCs could be purchased by energy users in a basic standard procurement transaction and used as an offset solution.

This is certainly, I think, ushering quite a lot of activity towards this activity in recent times, as both the price signals for PPAs change and the corporates look for a more basic standardised transaction alternative to hit their renewable energy and zero-carbon goals.

Now, it stands to reason that we may see some adjustment of how these two certificates corelate over time – perhaps, in a regulatory sense, how they interlink. But at the moment, the pricing suggests that LGC certificates over the longer term provide a cheaper alternative to achieving these outcomes.

Next one please, Gloria. Part of the work of the Renewable Energy Hub is developing an online platform for these types of transactions to take place. This is a very large project that’s been underway, and it’s built off the back of our in-market transaction team. So, we’ve had big teams of wholesale market brokers that are transacting both secondary market energy and certificate and carbon contracts, and also priming market transactions whereby people are doing directly with a new projects for longer-term structured deals.

This has always been a more bespoke space for these kinds of transactions to be undertaken. But as we see increasing demand from corporates and industrials to participate in these types of transactions, we’re really looking to build some standardised options for people to engage in this market, to de-risk participation in both the renewable


energy and the carbon market, and provide access to liquidity on a range of different contracts that are really customised to their needs.

And so, clean energy market needs its own type of contracts to manage into the wholesale market. Of course, if you imagine the current wholesale electricity market was designed for the profile of the market 20 years ago, we’re now seeing all manner of different variable time of day generators from pump hydro to demand response to virtual powerplants looking to participate in the wholesale energy market. And so, a platform like this designs some contracts that are more profile to their needs and centralised focal point for liquidity on those types of transactions.

This project is coming to market very shortly and it’s supported by the ARENA body government there. So, building out the capabilities to bring these types of standardised contracts to market participants coming soon.

Thank you, Gloria! Next one. So, that’s the three. I guess a high-level snapshot without getting too into the details. This is certainly I’d love to explore any of these ideas further with anyone who has any interest. But I crossed those main categories. I think it’s important to stay up to date with the conversions between these options and how come this is playing out. Because at the moment, with these price transitions, we’re seeing some very different options available in market both for clean energy and offset transaction requirements.

And to anyone who’s embarking on the journey, a good thorough evaluation of these options is a very good place to start. Thank you very much!

Gloria Karaiskos: Thanks, Chris! Really great to highlight the initiatives of Renewable Energy or RE Hub. I think it’s a really good resource for anyone wanting to find out more about energy markets and get involved. And yes, thank you also for highlighting those options available. We know AVAs, LGCs – it’s not just one option here to achieve those goals, so interesting to discuss that there further with you.

To close out now today, we’re got Tristan Edis who’s the Director of Analysis and Advisory at Green Energy Trading. Or more specifically, their green energy markets. His approach is based on renewable energy and energy efficiency certificate markets.

I’ll toss over to Tristan now for his presentation and then we’ll get into the Q&A. I can see quite a bit of activity already. So, over to you, Tristan. Thanks!

Tristan Edis: So, what I was gonna do is just run through a bit of price history. Firstly, in LGCs just an illustration of some of the experiences that are out there that might be helpful for the audience.

So, first of all though, about us. So, Green Energy Group is composed of two separate businesses. So, I think on the promotion it spoke about Green Energy Trading. So, that’s one of our business which is involved in, I suppose, directly involved in the markets in terms of purchasing certificates and then selling them through an aggregation service. So, really lots of little solar systems or lots of lighting installations. We help business aggregate those up and then unsell them to larger entities, and also go through the administration associated with accurately registering those so that you don’t end up in trouble with the regulator.


And then, Green Energy Markets is an analysis firm that provides a series of reports tracking supply and demand and prices in assorted abatement certificate markets with a particular focus on STCs, but also LGCs and energy efficiency certificates.

So, moving along. So, what will I tell you today? I’m gonna use the LGC market as a bit of a background there and walk through the history of gyrations in those prices, and I think that helps illustrate some of the challenges and risks involved if you want to get involved in carbon markets. And I won’t spend much time pretending that I have solutions to those gyrations. Reality, the point is you need to be on your toes, you need to be making use of good quality and timely information and advice so that you can quickly respond, and sometimes if you’re lucky, you can anticipate the changes before they happen and either heed yourself or take advantage of those changes.

So, first of all, we’ll jump to the slides. So, what we’ve got here in this yellow line is the history or the spot price history of LGCs since going back to 2003. And what I’ve highlighted here in the light green is what I’m calling Phase 1, which is a logical phase.

So, the first thing we had here with step one in Phase 1 was entirely logical prices essentially around what was needed to incentivise new entrant renewables to create LGCs. And that all seemed quite logical. Then, step two was The Howard government was re-elected in October 2004 and had made it very clear that they were not interested in expanding their renewable energy target, and it was evident that there was more than enough supply to meet what was a pretty weak target at that time. And then prices plummeted.

But then, step three in Phase 1 was the price revived as state governments decided, ”well, actually, we’d like to do something to support renewable energy,“ and a range of states came in with their own versions of renewable energy target schemes. Different to what we’re seeing now – they were actually certificate schemes. And we saw a revival of the price.

And then essentially step four was, Howard was staring down the barrel of an election loss and he had a very enthusiastic environment minister called Malcolm Turnbull and they announced, much to my surprise I must say, that they would expand their renewable energy target, although they called it a clean energy target then. They were gonna transfer it and allow clean coal to participate. What a joke!

But it had the desired affect and we saw a further surge in the LGC price, and ultimately Rudd was elected which then continued that, and we got ourselves back to what then was the new entrant price for renewables. And that time, wind turbines were a lot more expensive than what they are now, and solar panels weren’t even on the horizon as a significant source of supply.

So, back up to $50. Then we moved into what I call Phase 2, which was regulatory uncertainty reigns. Now, what ended up happening was, in this phase, the first step was number one there in the blue line. We saw a price collapse, and what happened was the market became saturated with a surge of LGCs from rooftop solar systems. So, people had not anticipated that rooftop solar would achieve dramatic cost reductions, within a very short amount of time become very popular, and I think it was a well-intentioned measure by the Rudd government at the time, but subsequently really didn’t work in practice was they wanted to – they awarded a multiplier, so multiple LGCs to a solar


system. So, if they generated one megawatt of electricity, they didn’t get one LGC, they got five LGCs.

And the other thing was that you got your LGCs all upfront when you install the solar system. So, you get 15 years-worth of generation upfront. So, that meant we saw an absolute huge surge of LGCs in a very short period of time, and the price collapsed. Then the price recovered when the government said, ”okay, yep, we’ve made a mistake here and we’ll pull rooftop solar out of the scheme and put it in a different scheme.“ But then reality sunk in, in step three, and they went, ”actually, God, this is a huge overhang of LGCs and really we’re not gonna need new projects for some time.“ And so, the price then fell again.

And this is kind of logical, but what you can see is rapid change government policy here going on that is really making it very difficult to work out to work out what is the underlying value of this certificate.

And then what I call Phase 4 was, the way the government at the time did an appalling job of saying to the market, “look, this scheme is on place, we’re not changing it, we want it to stay as it is,” and instead they exposed it to several reviews of the scheme where they left it open about, ”oh, we’re open-minded about what this review might do and what it might recommend and how we might respond to those recommendations,“ and it was an appalling approach to policy and lead to a great deal of uncertainty and no real drive for new investment.

And then people started to realise, “Oh wait a second, Tony Abbott is gonna get elected, and we think he’s not really a great fan of renewable energy.” But he kept that somewhat disguised. But then in step five, he removed his disguise and he said, ”yep, you’re right – I can’t stand these things, and I don’t think climate change is an issue.“ And the market relapsed, and we saw a plummeting price.

And that’s sort of hitting that plummet in that month, then, price graph. It was really only a few days. We saw a massive collapse in prices. So, this is on a daily price chart. So, that obscures the extent of the price collapse that happen there.

So, that was the regulatory uncertainty reigns phase. And you can see there’s a pattern here. It’s bloody hard to predict what the hell is going on in this market.

Now, this was the most unpredictable thing that ever happened in my life, and in Phase 3. And that was step one; we saw Clive Palmer come to the rescue. And I will go to my grave remembering that press conference he did with Al Gore. It was extraordinary. And so, that meant that it wasn’t going to be able to essentially abolish the renewable energy target or slash it because he couldn’t get the senate votes, and he had to negotiate with labour and then really, we saw a surge in the price for certificates because there was a mad rush.

We were going to struggle to make the interim targets to 2020. There really wasn’t any supply because no one had done any investment in this sort of regulatory uncertainty period that preceded this. And so, the price essentially reached a price linked to the tax-effective penalty price. The shortfall penalty price.

And then we kind of made a stable point there for a while, so that’s the step two there, that red line where prices where everyone kind of thought, okay, there’s gonna be a long


period of not enough certificates to go around and we’re gonna be paying the shortfall penalty. So, that works out to about $92.86 in tax-effective terms, so that’s kind of set the benchmark for the price for a fair chunk of time.

So, that was Phase 3. It was kind of logical, but, God, it was illogical in terms of how it came about.

Phase 4 is what I call the confusion and illogical behaviour phase. Now, with this one, so, we’ve kind of reached this landing point where there’s not enough certificates to go around. It’s gonna be stuck at, you know, somewhere in around $85. And then in the latter half of 2018, the price just absolutely collapsed, and that’s step one. And I call that Snowy abandons ship.

Now, what happened there was, Snowy Hydro decided, ”actually, you know what, I’m happy to pay a shortfall penalty – I’m prepared to take a risk of bad publicity from not complying with the renewable energy target and I am going to sell the bank of LGCs that I’m sitting on.“ And in addition, a number of other large retailers had done the same thing, and the market suddenly realised this. Because it took a little while for everyone to realise because Snowy didn’t announce that to the market, that that was their intention, as you would expect. And we saw yeah, this massive price collapse occur.

Now, why did Snowy decide that they didn’t want to comply? And the reason for that is because, you can not comply in a particular year and curb penalties and then make good on those penalties later and get a refund on the penalty. So, within three years’ time, you can go back to the regulator and say, ”look, I’m sorry, here’s some LGCs that I bought from the market to make good on my shortfall – can I please get a refund on my penalty that I paid you?“ And so, essentially that opens up an opportunity for arbitraging between different periods of time. And we knew that there was gonna be a large oversupply of certificates around 2021, and even though there was a shortage in the short-form, and so that opened up an opportunity to save money.

But then the price collapse, but then it oddly revived with no evident change in the supply/demand balance, but there was a doubt about the tax treatment of penalty refunds. So, whether they would be a taxable form of revenue or not. But then the price collapsed again. And it happened before the tax department clarified how they were gonna treat refunds. So, that was a little bit strange that that price collapsed, but it just kept on going after the tax department clarified that they would not be taxing, they would not treat refunds as taxable income.

But then again, prices collapsed. You think everything is back to normal and that it’s all rational again. It’s being priced to long-term prices and long-term supply. But it’s revived again, and, yeah, trading around $40 now on the spot price even though we can see a huge surplus of LGCs within and around two years. So, within that refund window of three years. So, that’s really odd and a bit strange, and I’ll just zoom in on that with this particular chart here.

So, what this is – is the prices on the forward market. So, for different vintages. So, the blue line is the spot price, the dotted green price is Cal 19. 2019 delivery. Then 2020 delivery in that sort of long, green line there. So, you can see there’s large differentials.

So, what we’ve got here in number one, a differential of $40 between buying your certificates for delivering 2019 versus deferring compliance and buying them in 2020. So,


here’s differential there that wouldn’t normally happen in most natural markets where the holding cost is effectively zero for a certificate. It’s just a piece of information in a computer registry. So, that doesn’t make sense if you can arbitrage between those time periods. And obviously, that’s what Snowy saw an opportunity to do.

And so, phase two here, step two, you can see in that red line – sorry, I’ll just… That is the vintage price for 2020. 2020 is very stable, and then we saw it narrowing in the price difference there between that and the 2019 suddenly occur when a few retailers decided that they were prepared to not comply and narrowing. But then we then saw, strangely, a divergence occur between the short-term and the longer-term price, even though we sort of thought we’d changed market dynamics.

And then last, number four. This still is a large gap persisting across the vintages even though people can choose to defer compliance. And what I think this reflects is, there are some participants in the market who put a premium on complying and there are some participants who are happy to not comply and defer compliance. So, so far, everything hinges on AGL and Origin in particular, and whether they are concerned about reputational damage from not complying or whether they decide, ”no, actually, I’m prepared to defer compliance.“ And everything hinges on that. If they make that decision, then suddenly, prices completely – the difference between the vintages should completely collapse. But no one will know that except really Origin or AGL until probably it’s too late.

So, it’s a very interesting market and one that provides lots of ups and downs. And I won’t pretend to be able to tell you that I know everything that’s going on. You have to be humble in this market and you have to really have your eyes peeled.

So, I’ll leave it there because I’ve gone over my time by far too much, but I hope that gives you a bit of insight into some of the challenges involved in participating in what are essential government mandated markets, and ones where there’s a lot going on that is not necessarily evident in the underlying spot market. Thank you!

Gloria Karaiskos: Thank, Tristan! Really great to see some of the uncovering of those detailed information that you often don’t see, or have that information to hand, in the market. And great policy history there too. Thank you for your passionate history on that.

I can tell that we’ve gone over by a little bit of time. We’ve had some very rich discussions here today. A lot of the questions that have been coming through have been answered already, so just hold on a couple more minutes. I might just do a quick whip around the panel. But I can see there are quite a few questions in there for yourself, Aaron, around the biodiversity credit and biodiversity markets. Also, thanks for answering those ones that we get.

Is there anything, Aaron, that you wanted to add to those comments that you’ve made there, just around those biodiversity offsets?

Aaron Soanes: Not really, except there is a real appetite out there for the differentiation of ACCUs based on – not to get the word vintage confused, but I guess their credentials in the background. You can point to the average, carbon fund as a really well-credentialed producer of ACCUs, and other ACCUs that have a real positive environmental impact, and I think that the biodiversity credits and beacons and the approach that the LRF has taken


about those co-benefits assessment is definitely a way of the future for the price differentiation within the ACCU market.

Gloria Karaiskos: Mm. Great! Thanks, Aaron! And perhaps, just one for the one on energy markets. I’ll start with you first, Chris, and then to Tristan. If you’re completely new and if you’re looking to engage in the energy markets, whether it’s for PPAs or purchasing energy certificates, what would be your, number one takeaway for those new entrants to the market? I want to start with you first, Chris, and then I’ll ask the same question of you, Tristan.

Chris Halliwell: I think the first [inaudible] evaluating your options. Yeah, and working on what your key drivers are, your strategy. It’s very important to be aware that the menu of options and how attractive those options are changes depending on how large or small your appetite may be or who you are as an energy user. Some of them become more appealing and have lower transaction costs versus some of the larger economies at scale you can achieve if you’re a very large energy user and you can engage in a quite complex long-term corporate PPA.

So, I would suggest the first step is just running a quick evaluation that looks at the cross-section of options and gives you a good evaluation of these scenarios so you can sort of align your stakeholders internally to what your key drivers are on your zero-carbon journey. Because, yeah, I think people go down, slightly divergent paths, but now that we’re seeing a clear correlation developing between all of them, it’s good to just be able to evaluate and consider them side-by-side, first step.

Gloria Karaiskos: Great! Thanks, Chris! Tristan, you want anything to add there?

Tristan Edis: Look, the… Yeah, as Chris was saying, there’s an element there where some participants really – a PPA is not open to them because they’re not able to mobilise a sufficient amount of demand to underwrite a new project and access that long-term contract market. But for those that can, I mean, the issue there is that trade-off between the long-term certainty and perhaps a lower price than what you might get on the short-term market.

But at the same time, you’re exposing yourself to the price of those certificates over a very long period of time. And generally PPAs, you’re looking at a seven-year contract term, ten years, to underwrite a new project. And you might find that everything looks fantastic for the first three years with that project, but then the backend of the contract looks appalling. And we’re seeing their prices do eventually collapse on these markets and they do get oversupplied, so that’s the risk that you take.

But obviously, for some people that really want to do it for altruistic reasons, they want to demonstrate their sustainability credentials, it’s a fantastic thing to do because you get to point at a tangible project that everyone understands and can see is delivering environmental benefits, and you also get it at a much lower cost than what you would do in the spot market. At least in the short-term. So, it’s a balancing act there that you’ve got to trade off those two elements in deciding whether you want to go down that PPA route.

Gloria Karaiskos: Great! Thanks, Tristan! Definitely a dynamic market to keep an eye on as you engage in this space.

I will pull this to a close today. Thanks, everyone, for your patience on the line and for hanging with us for a few minutes. Thanks again to our panelists, Shakir, Aaron, Chris, and


Tristan. And also, to the CMI team behind the scenes that always makes this a pleasure to present on.

I hope you can all join us next week. It is our final seminar in this series. We’re gonna go internationally for our discussions, taking a look at market trading and procurement strategies in the international carbon marketspace. So, I look forward to seeing you all then.

Thank you once again and have a great Friday!


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Engaging in domestic carbon and energy markets · Web viewObviously, ongoing rooftop PV is a large factor around that. And so, the replacement cost for the alternatives of transacting