Clean Energy Market Wrap, Renewables

Clean Energy Market Wrap: April 2023

Marco Stella from CORE Markets provides a snapshot of Australia’s clean energy market. All information is correct as of 28 April, 2023.

Large-scale Generation Certificate (LGC) market

Following the sharp decline in prices that started in late 2022, the LGC price bottomed out at $39.75 shortly after the 14 February surrender – levels unseen since late 2021.

The subsequent recovery saw the price move in largely one-way traffic back up to the $49 range by late March 2023, where it skirted the $50 level for several weeks before pushing through in mid-April.

Prices at the time of writing are:

  • LGC spots: $52.60.
  • Cal 23: $53.
  • Cal 24: $45.75.
  • Cal 25: $38.30.

March 2023 saw the release of the Q4 Quarterly Carbon Market Report from the Clean Energy Regulator. The report noted a surplus of around nine million LGCs, although raw figures per the registry suggest a figure closer to 11 million so some assumptions have been made to explain this discrepancy.

Voluntary cancellations for the quarter were only 1.2 million LGCs. This represents a 75 per cent drop compared to Q3 2022, which recorded the largest quarter of voluntary cancellations to date.

With these two supply/demand realities as they are, it will be interesting to see how the price continues to change as we move towards the middle of 2023.

Small-scale Technology Certificate (STC) market

The STC market has continued to see limited trading with the clearing house having slid further into deficit, which at the time of writing is more than six million STCs.

The market had initially anticipated a return to surplus by Q3, with some strong creation growth across February, however this now seems unlikely given lower creations across March and April. Accordingly, forwards for strips for 2023 have been trading at $39.50 to $39.80.

Energy Efficiency Markets (VEECs and ESCs)

The VEEC market was sluggish to start 2023, despite the suite of changes that would ultimately reduce supply coming into effect on 31 January. The price initially ranged between $68 and $69 across most of January and February.

The impacts on creation have since started to show, resulting in the price pushing beyond its initial range. The spot price briefly touched $75 in the second week of March and has since been relatively stable, trading at $72.50 to $73 for most of March and April on the back of lacklustre creation. At the time of writing, the price has softened slightly to $71.25.

With no meaningful pipeline for activities to rejuvenate creation, the market is turning its attention to the next Federal Election in the hopes money may be attributed towards energy efficiency which could put meat on the bone following recent electrification policy discussions that has so far yielded little meaningful change to assist in the transition away from gas.

The volatility that started the year within the ESCs has persisted across the first quarter. After trading in the low $33 range in late January, the price softened to the low $29 range by late February as creation ramped up, owing to delayed creation from refrigerated display cabinets and an uptake in heat pump activity.

The price then jumped to $32 in early March, after the Independent Pricing and Regulatory Tribunal (IPART) “fired a shot across the bow” citing concerns around sales tactics and potential installation of heat pumps that were not fit for purpose.

This was followed by a significant, short-lived spike in forward prices with strips for 2024 trading at up to $34, in anticipation the department/regulator may take further action to tighten the heat pump activity.

With no further action forthcoming and continued strong creations, ESCs have since softened further to $30.75 at the time of writing.

The above information has been provided by CORE Markets and relates, unless otherwise indicated, to the spot prices in Australian dollars, as of 28 April, 2023.

The Renewable Energy Hub has recently acquired the TFS Green APAC business, and the combined entity has been rebranded as CORE Markets, an end-to-end markets, technology and climate solutions partner for business.

Marco Stella is head of carbon and renewable markets at CORE Markets.

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