Carbon Markets

13th ERF Auction date announced, but expectations remain muted

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The Clean Energy Regulator has announced that the 13th Emissions Reduction Fund (ERF) Auction will be held on 13 and 14 October 2021.

Since April 2015, the ERF has contracted to buy almost 205 million ACCUs at an average price of $12.32/t. The 12th ERF auction was held on Monday 12 and Tuesday 13 April 2021, with the Regulator contracting 6.8 million ACCUs at an average price of $15.99/t ($15.97 for optional delivery and $17.00 for fixed delivery) over 10 contracts. This was in line with our forecast expectations (7 Mt), yet well below the record high of 47.3 Mt contracted at Auction 1 in Apr-15 as low prices, and upside in the spot market, has curbed participation in the government’s contracting scheme.

In particular, the current high spot price environment has led to increased direct contracting between high emitting companies and offset project proponents (over 1-10 year terms) as counterparties seek more favourable prices and long-term security of supply (or revenues).

Optional Delivery contracts have been a welcome addition to the market, and are likely to continue to provide increased flexibility for project proponents to lock in a floor price, while still capitalising on higher prices in the private contracting market as corporate demand continues to emerge. To this end, we now view the ERF as a safety net for bidders unable to access direct offtake agreements with private sector partners, or those seeking to lock in long-term funding, with proponents increasingly likely to utilise their put options on future ERF contracts to access higher prices as they continue to materialise in the forward market.

As noted in earlier updates, should the Regulator willingly accept contracts at higher prices – allowing prices to rise well above $20/t – the handbrake on participation (and project registrations) could be released, with a higher contract price signal likely to incentivise participation from new projects types, such as environmental reforestation, plantation, and soil carbon. This remains to be seen, however, with the Regulator not indicating any tolerance for high contract prices.

As a result, the ERF remains a lost opportunity to encourage supply in support of Australia’s quickly developing voluntary market, with an unchanged price environment likely to see the scheme continue to putt along without realising its full potential.

Key auction dates

  • Project registration application deadline: Wednesday 25 August 2021
  • Auction qualification application deadline: Monday 6 September 2021
  • Auction registration application deadline: Tuesday 5 October 2021
  • Closing time for declaration of eligible projects: Tuesday 5 October 2021
  • Auction window: Wednesday 13 October 2021 to Thursday 14 October 2021

If you have any questions, please contact our Client Services team.

Kind Regards,
The RepuTex Team
Australian Electricity Markets

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