Is the RET running out of gas?

For two decades the Renewable Energy Target (RET) has driven more than 15GW of new solar and wind generation across Australia. With the target met, wholesale prices crashing and the value of the subsidy steadily falling, the RET may be accelerating to its twilight.

The certificates that set the value of the subsidy to large-scale renewable projects, the Large-scale Generation Certificates (LGCs), ended the first quarter of CY20 trading under $28 for the first time since 2014.

Those previous low prices were driven by existential threat: the future of the scheme was in doubt following what many saw as a hostile review by the Abbott Government.

The RET survived, albeit pruned back from 41,000GWh to 33,000GWh, and the LGC market rebounded strongly ahead of a three-year renewables building boom that may be showing early signs of cooling.

Last year saw a record 4.1GW of new large scale renewable projects, following on from the previous record 3.5GW in 2018. Even before oil price wars and COVID -19 lockdowns, there were signs of the market slowing.

The future pipeline of projects as measured by those reaching financial close eased to 2GW in 2019. Bullish renewables investment has been tempered by softening LGC prices, transmission constraints reflected by falling Marginal Loss Factors (MLFs), and increased soft to negative wholesale prices during the middle of the day in big solar states like South Australia and Queensland.

The maths on new renewable projects is unlikely to get any better as electricity demand falls and wholesale prices tank in the wake of a global oil price war between Saudia Arabia, Russia and the US.

While softer COVID-19 demand is only temporary, the impact of massive overproduction and deep cuts in oil and gas prices is likely to be more enduring.

The future of new renewable projects may depend more on state based schemes and post COVID-19 final spending as the influence of the RET continues to wane. How that plays out is hard to guess until there is greater clarity over what a post lockdown world will look like.