Marco Stella, senior broker, environmental markets, at TFS Green Australia and co-founder of The Renewable Energy Hub provides a snapshot of Australia’s clean energy market. All information is correct as of 26 April, 2022.

Large-scale Generation Certificate (LGC) market

Following a brief period of softness after the passing of the 2021 compliance date in mid-February, the spot LGC market climbed across March 2022 from the low $40 range to a high of $49.50 in early April.

The rally appears to have been driven by a combination of reduced supply expectations, in part owing to heavy, persistent rain across the Australian east coast. In an interesting dynamic, the period also saw far greater demand for spot versus Cal 22 forwards, which saw the escalation between the two narrow significantly to even by flat on various occasions.

This has led some people to conclude the heightened demand for spots may have been reflective of buying interest from participants looking to make good earlier in the year on previous shortfall strategy payments, thus receiving refunds from the Clean Energy Regulator now rather than later in the year.

For the forward curve, it was a mixed period with increases in the latter part of the curve, particularly Cal 26 ($27.25), while Cal 23 and Cal 24 were fairly flat, reaching $45.55 and $40, respectively, at the time of writing. The Cal 25s currently sit at $33.75.

Small-scale Technology Certificate (STC) market

After years of STC supply outstripping annual targets, it appears the market is set to underperform in 2022. Two years of COVID-19-fuelled home upgrades and increases in people working from home caused a boom in installs across 2020 and 2021. With borders now reopened, it seems many households are prioritising travel and other things over solar. The incessant rain on the Australian east coast in 2022 also has not helped.

The 2022 Small-scale Technology Percentage was set at 27.26 per cent, requiring 819,000 of STCs to be submitted weekly. The average for the year so far is 691,000, well under what is needed. As a result, the spot STC price climbed steadily across March and early April to eventually bump up against the $40 Clearing House price.

By mid-April, the Clearing House surplus had been replaced by a deficit, which at the time of writing reached 2.7m. While it appears unlikely solar installs will jump dramatically during winter, the market has been surprised before, and the final four to five months of the year typically see a 20 per cent jump in STC submission compared to the first half of the year. Such an outcome would make for an interesting end to the year.

Energy Efficiency Markets (VEECs and ESCs)

The pessimism around future VEEC supply that has characterised the past two years – owing both to extensive changes outlined by the Department of the Environment and Energy, and the lack of success in any new methodologies – continued in the early part of the year with the VEEC market having strengthened into the $80 range.

This all changed in March 2022 as evidence of the success of the Refrigerated Display Cabinets (RDC) methodology, combined with the looming timeline set by the department for the release of new methodologies, saw buying interest disappear. The result was an illiquid gapping down which saw the spot soften above $30 to the low $50 range by early April.

Some technical delays to the rollout of the RDC methodology, as well as delays to new methods such as smart thermostats, have seen the spot price edge higher on low liquidity in the periods since, to reach $55.50 at the time of writing.

Having reached a high of $37.75 earlier in the year on the back of concerns about disruption to installation activity due to the COVID-19 Omicron variant, the spot ESC market softened across the latter part of February and March to spend most of April between $35.50 and $36. The pending introduction of new activities – hot water, air-conditioning and RDC – and the market’s previous proximity to the tax-effective penalty appear to explain the decline.

The above information has been provided by TFS Green and relates, unless otherwise indicated, to the spot prices in Australian dollars, as of 26 April, 2022.

Marco Stella is senior broker, environmental markets at TFS Green Australia and co-founder of The Renewable Energy Hub. The TFS Green/Renewable Energy Hub team provides project and transactional environmental market brokerage and data services across all domestic and international renewable energy, energy efficiency and carbon markets.