The TFS Green Australia team provides project and transactional environmental market brokerage and data services across all domestic and international renewable energy, energy efficiency and carbon markets. The information below has been provided by TFS Green and relates, unless otherwise indicated, to the spot prices in Australian dollars, as of 26 February 2016.
SMALL-SCALE TECHNOLOGY CERTIFICATE (STC) MARKET
With the Clearing House remaining in deficit throughout the entire Q4 surrender period, the price for STCs was always going to remain steady, with most sellers opting to use the certainty of the Clearing House over the market. As such, the spot price has remained entrenched at $39.90, and is unlikely to move far until the Clearing House moves back into surplus.
The forward STC market showed some signs of life in February, but is still a shadow of the market that dominated the environmental space until early 2015. All of the activity has taken place in the second half of 2016, or early 2017, at prices from $39.45 to $39.75, with participants betting that the Clearing House will be out of deficit by then.
Whether the Clearing House moves into surplus is dependent on the 2016 Small-scale Technology Percentage (STP), which had yet to be published at time of print. The Clean Energy Regulator (CER) has until 31 March to publish the 2016 STP. If it fails to do so, a default formula will apply.
The final date for the surrender of STCs passed on 14 February and included the surrender of certificates based on annual energy acquisition statements from liable entities; that is, the electricity they actually used, as opposed to the estimates used for the three previous quarters. As shown in the STC surrender chart, there were only minor discrepancies between the actual and target surrenders throughout the year. For the year as a whole, there were only slightly more certificates surrendered than the 20.57 million estimated by the CER when the 2015 STP was published.
LARGE-SCALE GENERATION CERTIFICATE (LGC) MARKET
Having kicked off 2016 in the low $70s, the spot LGC market strengthened rapidly across January to surpass the previous high of $77.00, reaching $83.75 by month’s end. The level, however, could not be maintained, with the spot softening rapidly across early February as buyers withdrew from the market. The spot ultimately hit a low of $79 in the middle of the month, before recovering to spend its remainder trading in thin volumes between $80 and $82.
While there have been some positive indications in the media regarding large-scale project commitments, this has not yet resulted in any serious changes, with the market still looking very much like running low on LGCs in calendar year 2017 and being clearly short by 2018. Noting this, the recent softening in the LGC price may be a reflection of the passage of the compliance period for 2015. Yet it also may be indicative of the fact that, with the spot price having approached the mid $80s, there was little margin left to cover potential regulatory risk.
ENERGY EFFICIENCY MARKET
It was an active start to 2016 in the Victorian Energy Efficiency Certificate (VEEC) market, and while prices did move around, it could not match the extreme volatility of the second half of 2015. A surprising level of activity in the first couple of weeks of January led to the spot price drifting from $25.40 to $24.25, before rising sharply to $27.00. The market only stayed at that level for a single day, however, and softened back to $22.00 by the beginning of February.
Trade volumes decreased in February and, as a result, price movements were not as significant, with the spot price spending a majority of the month trading between $22.90 and $24.00.
As is often the case at the beginning of the year, a divergence emerged between the value of 2015 and 2016 vintage certificates. This gap blew out by the end of January, with 2015 vintage certificates at one stage collecting a $3 premium over forward trades for the later part of 2016, as buyers were keen to close the lid on their 2015 obligations. That gap reduced greatly throughout February as relevant entities met their 2015 obligations. At times it disappeared altogether, but as of the month’s end it sat at around $0.55.
It was a stable start to 2016 for NSW Energy Savings Certificates (ESCs) as the spot price continued to fall throughout the first couple of weeks of January, reaching a low of $26.40. The market, however, rebounded promptly and was trading back at $27.40 early in the second half of the month. Steady rises followed and the spot traded as high as $28.40 in early February as ESC registrations remained low. ESC registrations have been volatile over recent months, with three or four softer weeks (10-25k) often followed by a larger (100k+) week, with the spot price softening somewhat when the latter took place. This occurred in late February, with the spot drifting back to $27.95.
The theoretical ceiling price of an ESC has increased with IPART increasing the Scheme Penalty Rate for the 2016 calendar year, set at $27.03. Bearing in mind that the purchase of ESC is considered a business expense and is subject to a tax deduction, whereas paying the penalty price is not, the real ceiling price is $38.61, up from $37.91 in 2015.