As part of its role in operating the Scheme, the Scheme Administrator monitors supply of and demand for certificates. The Scheme Administrator does not undertake forecast modelling, but projects supply of certificates based upon knowledge of existing participants, future project accreditations, applications for accreditation, and where necessary, some conservative assumptions.

The projection of supply and demand is sensitive to small movements in some of the key factors used in determining the NSW and ACT greenhouse gas benchmarks. At the time the projections below were calculated (30 June 2008) there was significant uncertainty around the architecture and timing of commencement for the proposed national Carbon Pollution Reduction Scheme, and therefore the probability of future certificate creation levels. The Scheme Administrator expects that, as the framework for a national scheme is developed and the policy environment becomes clearer, the projections of supply and demand may change. In addition, the recent NSW Government announcement (see DWE) for a proposed NSW Energy Efficiency Trading (NEET) scheme (to commence in January 2009), may further affect the supply and demand projections below.

The Scheme Administrator cautions persons against making decisions based upon the supply/demand projections depicted.

Assumptions in projection

The projection of the demand and supply of certificates is based on a number of conservative assumptions as follows.

• Mid range estimates of electricity demand, NSW and ACT population growth, and the NSW/ACT pool coefficient.
• The NSW Pool Coefficient is projected to continue to increase in response to the continuing drought conditions in NSW.
• Projection of distribution loss factors is based on the actual weighted average from the returns of 2007 calendar year benchmark statements.
• The TransGrid Annual Planning Report 2007 revised downwards future electricity demand (see Table A3.1 of the TransGrid 2007 Annual Planning Report, available at www.transgrid.com.au/Annual_Planning_Reports.htm), which in turn has decreased projected demand.
• The number of RECs counted (only RECs associated with electricity purchases in NSW and the ACT can be counted) is anticipated to rise incrementally based on expected increases in electricity demand and the renewable power percentage (see the Renewable Energy (Electricity) Regulations 2001 (Cth)). No allowance has been made for changes to the Mandatory Renewable Energy Target announced during the 2007 election campaign.
• Queensland Generators eligible to create Gas Electricity Certificates (GECs) under the Queensland 13% Gas Scheme will prioritise GEC creation over NGACs. This assumption is based on the price differential between GECs and NGACs. History to date suggests GECs will continue to trade at a higher value than NGACs.
• A number of projects accredited to create NGACs in 2007 are also accredited to create RECs. Similar to projects accredited in the Queensland 13% Gas Scheme, these Generators must choose between creating an NGAC or REC, for each eligible MWh of generation. In the case of these generators, it was assumed that future NGAC creation behaviour is reflective of the maximum number of NGACs each generator has nominated in their application for accreditation.
• The volume of certificates created from a number of similar energy efficiency projects peaked in 2007 and will continue to decline during 2008-9. It was assumed that from 2010 onwards, owing to announced changes with regard to the use of incandescent light bulbs, accredited energy efficiency projects will no longer achieve the abatement of previous years.

It should also be noted that the Scheme Administrator has changed the methodology used to calculate demand to better account for the effect of demand side abatement NGACs on the calculation of Total State Demand. This change projects a lower demand in 2008 and 2009 than previously published.

Projection results

The annual supply scenarios have been prepared based upon the Scheme Administrator’s knowledge of the potentially variable sources of supply for certificates. The following is a detailed description of each.

• Scenario One: The projected supply of certificates in this scenario is based on the abatement expected to be achieved by existing accreditations only, and excludes all future projects. This scenario is the low-range projection.
• Scenario Two: The projected supply of certificates in this scenario is based upon the abatement expected to be achieved by existing accreditations, including all accredited future projects. It is assumed that the accredited future project will commence abatement activities as anticipated by the project proponent. This scenario is the mid-range projection.
• Scenario Three: The projected supply of certificates in this scenario includes all accredited ACPs, accredited future projects (including the assumption that commencement of operation will be achieved as scheduled by the project proponent) and all current applications for accreditation. This scenario is the upper-range projection.

The projected demand is depicted by a single scenario which is based on the 2008 key factors published by the Scheme Administrator on 20 November 2007.

While the legislative amendments to the Act in 2006 allow the Scheme to continue operation beyond 2012, given the implementation of a national emissions trading scheme in or around 2010, the Scheme Administrator has chosen a projection timeframe that extends to and is inclusive of the 2012 compliance year only.

Projected annual demand and supply of certificates (as at 30 June 2008)

All projections depict a supply that peaks in 2007 and remains high in 2008. This peak is created by the strong growth in abatement from energy efficiency projects accredited under the DSA Rule in the years 2005-07. This growth is expected to fall slightly from 2008 due to a declining spot price and cease in mid 2009 as the contribution from compact fluorescent lamps is removed. Underlying this is an expectation of continued steady growth in abatement under the Generation Rule, with several future projects beginning operation from 2009 onwards.

In Scenario One from 2010 onwards, a number of generation projects cease to create NGACs due to expiry of power purchase agreements (PPA), causing a further decline in annual supply.

Scenario Two also shows high levels of supply to the end of 2008 and decline in 2009; however, the implementation of currently accredited future projects commences at approximately the same time. Assuming these future projects commence as scheduled, they will offset any reduction in supply resulting from the expiry of PPAs and changes to the DSA Rule.

Scenario Three, which includes all applications for accreditation (including future project applications), suggests that reduced supply from energy efficiency and from PPA expiry will be largely negated by an expected increase in certificate creation by future projects under the Generation Rule. However, this supply curve assumes that:

• all existing accreditations (aside from energy efficiency) will continue largely unchanged until at least 2010,
• all current applications will be accredited, and
• all future projects, whether accredited or in application stage, will commence as scheduled.

Scenario Three (which includes current applications for accreditation) is very similar to Scenario Two (which does not) because as of 30 June 2008, several generation projects were recently accredited.

The demand for abatement certificates is expected to continue to rise in the compliance period to 2009. This rise can primarily be attributed to:

• the NSW Greenhouse Gas Benchmark holding steady at 7.27t CO2-e per capita, while population and electricity demand increase, and
• a steady increase in the NSW Pool Coefficient is expected (average intensity of emissions in CO2-e gases per MWh of electricity).

Demand is projected to decline after 2009. While the per capita benchmark remains steady after this time, population is predicted to rise faster than demand for energy; and the Renewable Power Percentage will continue to rise (meaning benchmark participants can surrender a greater number of RECs in place of NGACs).

Under Scenario One, annual supply of certificates is less than annual demand from 2008 onwards. Certificates do not expire, and a certificate created with a particular vintage may be surrendered against a compliance obligation for any year thereafter (for example, a certificate of 2004 vintage may be surrendered against a compliance obligation in any year from 2004 onwards). It is likely therefore, that in Scenario One the surplus of supply experienced in the first five years will assist in meeting the projected demand from 2008 onwards.

Scenario Two and Scenario Three show that annual supply is slightly larger than annual demand in 2008. As in Scenario One, the annual demand is greater than annual supply in 2009, but by 2010 supply has again risen above demand. However, the nature of the assumptions around transition to a national scheme illustrates the uncertainty of these supply scenarios.

New sources of abatement certificates

There are a number of future projects either accredited or being assessed as applications under the Generation Rule. While it is expected such projects will be a strong source of new supply, future project accreditations have experienced delay and in some circumstances been withdrawn some time after accreditation. The Generation Rule is projected to be the main source of certificates into the future.

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