Clean Energy Market Wrap, Renewables

Clean Energy Market Wrap: August 2023

Marco Stella from CORE Markets provides a snapshot of Australia’s clean energy market. All information is correct as of 25 August, 2023.

Large-scale Generation Certificate (LGC) market

The LGC market continues to grapple with prospects for the supply/demand balance in another year in which project delays and growing voluntary demand have kept the calculus interesting.

Overall pricing outcomes in the LGC market across July and August 2023 were stable/positive with the spot and Cal23 contracts experiencing the most volatility, while Cal24 and Cal25 contracts saw steady, yet modest, gains during the period.

The mid-section of the curve (Cal24 and Cal25) climbed across the middle of the year, which appears to suggest growing confidence that the often forecast, though never (to date) realised, blowout in LGC surplus will not materialise.

However, scars from the sharp drop in prices experienced between December 2022 and February 2023 will serve as a sage reminder the LGC surplus has continued to grow despite how things have appeared during most of the past three years.

At the time of writing, the forward curve is:

  • LGC spots: $55.50.
  • Cal23: $57.
  • Cal24: $52.75.
  • Cal25: $45.50.

Small-scale Technology Certificate (STC) market

There was little of note in the STC market with the clearing house remaining in surplus throughout winter and the deficit climbing to a high of 4.3 million just after the Q2 surrender on 28 July, 2023. Signs of an uptick in creations in August have led some people to posit that a surplus could return in Q3 or Q4, depending on how significant the usual second half of the year bump in creation rates is.

Energy Efficiency Markets (VEECs and ESCs)

The VEEC market continued to climb across July and August 2023 with a clear reduction in VEEC submissions following the 30 June deadline for 2022 activity date certificates, combining with a lack of confidence in future supply, to push the VEEC price to all-time highs.

Having briefly reached a high of $88 in early August, the spot market softened to trade for the rest of the month in the $86 range. Of note during this time was the forward curve trading at very modest carry rates, which appeared to reflect counterparty credit concerns and the proximity to the nominal penalty rate of $90 rather than an expectation that future supply would increase.

On the latter subject, there are precious few attractive methodologies capable of creating significant numbers of VEECs moving forward, a factor that bodes poorly for the scheme’s future. The spot price sat at $86.50 at the time of writing.

While the VEEC market moved steadily higher, ESCs lost ground across the same period, although with greater volatility along the way. The divergent outcomes illustrate significant differences in approaches taken by scheme administrators in the past 18 months.

Victoria sought to phase out lighting before new activities were available, but NSW focused on new activities and allowed commercial lighting to continue creating ESCs while the new activities got off the ground. The result is significant growth in heat pump installations across the state in residential and commercial settings, as has been the growth in ESC supply.

The cut-off date of 30 June for the previous year’s installations saw a record 1.6 million ESCs approved, with the spot ESC price softening to its lowest levels since August 2020. The phase out of commercial lighting is no doubt still on the agenda and an announcement of a firm plan around that could yet buoy ESC prices across the remainder of 2023. Spot ESCs were at $26.05 at the time of writing.

The above information has been provided by CORE Markets and relates, unless otherwise indicated, to spot prices in Australian dollars as of 25 August, 2023.

CORE Markets is 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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