Know your ERF – Auction Four Pricing & Bidding Risk Analysis

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Analysis indicates that the average price of carbon contracts under the Emissions Reduction Fund (ERF) is likely to rise at the fourth auction, to be held next week, driven by low participation and low competition.

As of November 7, 290 projects are eligible to participate in the fourth ERF auction, with just 25 new projects registered since the third ERF auction in April, a 65 per cent fall in auction registration rates from ERF III levels. Analysis indicates that low turnout may work to the benefit of companies that do participate at the fourth auction, with reduced participation and lower competition likely to lead to higher contract prices, while informed bidders are again forecast to contract well above the average price disclosed by the Clean Energy Regulator.

In this Presentation (PDF), we provide our initial expectations for ERF auction four prices, and discuss ‘bidding risk’ considerations for proponents, including risk thresholds for conservative and speculative bidders.

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