Marco Stella from CORE Markets provides a snapshot of Australia’s clean energy market. All information is correct as of 22 February, 2023.
Large-scale Generation Certificate (LGC) market
Despite the appearance of a substantial surplus of LGCs, the second half of 2022 saw prices well above that which had been seen in recent years. That is until December when buying dried up. What followed was a sharp decline in prices on large trade volumes and often in volatile conditions. To give some comparison of where the market sat on 1 December versus at the time of writing:
- Spot $65 and $42.50.
- Cal 23 $59 and $44.25.
- Cal 24 $49.65 and $39.
The question for the year ahead is whether the current pricing at more than $20 below levels seen last year constitutes a bargain, or whether the market is returning to the type pricing range seen between 2019 and 2021, when the spot was largely between the low $30s and mid $40s.
The wash up following surrender on 14 February was a surplus of circa 11 million LGCs, the largest such surplus in four years. The extent of the growth in voluntary demand in 2023 and beyond will likely determine whether that surplus will only grow from here, and more supply comes online.
Small-scale Technology Certificate (STC) market
The 2022 Small-scale Technology Percentage (STP) proved to substantially overestimate the number of solar systems that would be installed across the year, resulting in a deficit of STCs across most of 2022. The 2023 STP was always going to be considerably smaller to account for this deficit, along with the smaller number of STCs received per install (owing to the deeming period reducing by one year). In the end, the 2023 figure came out at 16.29 per cent (compared to 27.26 per cent for 2022) with 34.4 million STCs needing to be produced to meet the target, plus make up for the deficit.
While anything other than a tight STC market in Q1 and Q2 appears unlikely, it is possible the market will return to surplus in Q3 and beyond, and a flurry for forward market activity has suggested the market believes this is likely. Forward strips across the March to December 2023 period were agreed in large volumes at $39.60. While prices for Q3 and beyond were more in the $39.40 region.
Energy Efficiency Markets (VEECs and ESCs)
On 31 January, a suite of changes that would reduce VEEC supply came into effect. This includes the removal of Schedule 21 Residential Lighting altogether, the removal of high bay replacements under Schedule 34, and a reduction to the VEECs created per install for all remaining creation methodologies owing to the reduction in the scheme’s emissions factor.
Contrary to what many had expected, the spot VEEC price softened in the period, with the market trading from the low-to-mid $69s to the low-to-mid $68s. Should no new methodologies emerge, it appears unlikely the current crop will be capable of maintaining existing creation numbers.
The ESC market saw a particularly volatile period across early 2023 with the spot climbing to the low $33s in late January before subsequently softening to $29.25 at the time of writing. The softening came on the back of several large weeks of ESC registrations and the expectation that heat pump activity would result in an increase in activity across 2023.
The above information has been provided by CORE Markets and relates, unless otherwise indicated, to the spot prices in Australian dollars, as of 22 February, 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 a co-founder of CORE Markets.
