Projects flock to qualify for Australia’s third ERF auction, weighing on prices

Published 09:15 on March 24, 2016  /  Last updated at 10:09 on March 24, 2016  /  Asia Pacific, Australia  /  No Comments

There is strong interest among project developers to participate in Australia’s third auction under its Emissions Reductions Fund (ERF), the Clean Energy Regulator said Thursday, a trend analysts say is likely to weigh on prices.

There is strong interest among project developers to participate in Australia’s third auction under its Emissions Reductions Fund (ERF), the Clean Energy Regulator said Thursday, a trend analysts say is likely to weigh on prices.

The deadline for projects to qualify for the Apr. 27-28 auction is midnight AEDST Thursday, with project owners already required to have registered with the Canberra-based regulator before a Mar. 9 cut-off date.

“Registrations received have shown a strong interest in this auction, with many new project applications submitted in the week leading up to Mar. 9, paving the way for a competitive auction,” the regulator said in a statement.

The regulator did not provide a specific number of projects that might be eligible to bid in the upcoming auction.

“To date, there are 562 projects registered under the Emissions Reduction Fund, and 275 projects were contracted following the first two auctions,” a spokesperson told Carbon Pulse.

“We do not disclose how many project registration applications we have received before they are assessed, however applications received have shown a strong interest in this auction.”

PRICES DOWN AGAIN?

In the first ERF auction in April last year the Clean Energy Regulator bought emission cuts for an average A$13.95 per tonne of CO2e. The second auction held last November saw prices fall to A$12.25.

More eligible bidders in the third auction are likely to bring the price down even further, according to observers.

“We are likely to see bidders – including industry – enter the market more aggressively during the next auction,” Bret Harper with market analysts Reputex said in a webinar last week.

He added that a number of larger-scale industrial projects able to offer low-cost carbon cuts are entering into the mix, while there is still huge supply available from land-based projects that didn’t succeed in the last auction but have had more time to prepare for the next one.

Those factors will combine to put downward pressure on prices, Harper said, adding that the ERF’s eroding budget also makes project owners more likely to lower their bids because there are probably only two auctions left, unless the government replenishes the fund.

The Clean Energy Regulator contracted emission cuts worth A$1.22 billion in the first two auctions, leaving A$1.33 billion in the pot. But with no new money for the ERF pledged in this year’s budget, project owners most likely have only two more chances to win government contracts.

The regulator reaffirmed Thursday it plans to hold the fourth auction in Q4 this year.

Meanwhile, Harper warned participants that putting in bids just below the last auction’s average price was no guarantee of success.

“The average price of previous auctions is a poor price signal because ACCU demand and supply remain unidentified before and after the ‘auction’,” he said.

The regulator only announces the average price for the winning contracts at auctions, and does not break down numbers into project types or reveal its own threshold levels.

By Stian Reklev – stian@carbon-pulse.com

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