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 17 February, 2022.
Large-scale Generation Certificate (LGC) market
It was a wild ride in the LGC market in the weeks leading up to the 2021 compliance date, with plenty of trade activity and a significant jump in the forward curve.
The spot market began the year in the low $43 range and continued to climb to a mid-January high of $46, before softening to the mid $44 range within a matter of days.
However, far from the end of the run, the market rose again as late compliance buying saw the spot end the month at $47.50, before it once again lost ground. Of perhaps even greater note during the same period, the forward curve also jumped sharply.
The Cal 22 market went from $43 to a high of $47; the Cal 23 market went from $37.60 to a high of $46.50; and the most liquid and extreme mover of the lot, the Cal 24 market, went from $31.35 to a high of $42.70.
Following the compliance date of 14 February, greater clarity was achieved on the nature of the surrender and the size of the surplus rolled forward into 2022. Firstly, it appears there was a circa 5m LGC under surrender, with 28m LGCs acquitted against a 33m target. In terms of the surplus, there was in the region of 7.5m LGCs rolled over into the 2022 compliance year.
Small-scale Technology Certificate (STC) Market
The first six weeks of 2022 were a busy time in the STC market, both in terms of trade activity and by way of highlights. For the first time ever, the Small-scale Technology Percentage was released in early February, right at the end of Q4 compliance.
The 2022 STP of 27.26 per cent, or equivalent to 47.7m STCs to be surrendered across the year, was technically lower than 2021’s target, yet given solar systems receive more than 10 per cent less STCs per install, owing to a reduction in the deeming period, an equivalent target would effectively be 10 per cent larger.
With a base component of 42.6m STCs, the effective weekly submissions rate required for the year is 819k. Owing to a range of factors – including COVID-19, longer holidays and plenty of rain on the Australian east coast – weekly submissions for the first five weeks of 2022 were well below this, coming in at an average of 733k.
Needless to say, this combination of factors has seen STC prices edge higher, with the 2021 spots for Q4 compliance reaching a high of $39.85 in a last-minute squeeze, while at the time of writing the spot market reached $39.50.
Energy Efficiency Markets (VEECs and ESCs)
With no announcement on new high-volume activities forthcoming in late 2021, and significant negative changes on 31 January, 2022, that would reduce the number of VEECs per install, the spot VEEC market climbed across January into the $82 range by mid-February.
While a glimmer of hope for new creation volume emerged via the Refrigerated Display Cabinet methodology, the Department of the Environment and Energy increased uncertainty around the methodology by announcing an investigation into inappropriate activity, just as many participants were gearing up to create under the activity.
In NSW, the ESC market saw a strong start to the year, climbing from $36 to $37.75 as the short-term impact on installation activity of the Omicron wave of COVID-19 appeared to bolster the market. The forward curve flattened out during this time with little difference between the spot price and forward deliveries out to 2023, reflecting anticipation of new creation from the hot water methodology that will commence in April.
The above information has been provided by TFS Green and relates, unless otherwise indicated, to the spot prices in Australian dollars, as of 17 February, 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.