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 22 June, 2022.

Large-scale Generation Certificate (LGC) market

The extraordinary conditions at play in the National Electricity Market and markets more generally were experienced in a milder version in the LGC market across Q2. The front end of the curve first softened across May with the spot market moving from the high $48 range to the mid $47 range as buying thinned out.

The market then climbed steadily across the back end of the month and into June, reaching a high of $50.25 at the time of writing. The rally seems to have been bolstered by a report from the Clean Energy Regulator indicating a 250 per cent increase in voluntary LGC surrender in Q1 of this year (compared to the same period in 2021) as well as speculation of the potential impact on shortfall strategies of the credit and cashflow issues arising from the unprecedented conditions in the electricity market.

The forward market has climbed considerably during the period with later months seeing the biggest movement in prices. In particular, the Cal 26s strengthened from the low $27 range in April to $35 at the time of writing.

Small-scale Technology Certificate (STC) market

The STC market continued to see submissions below the rate required by the target across Q2. Following Q1 compliance in late April, the STC clearing house went into deficit, where it remained for most of the quarter. As result, market activity in the spot has been very modest with occasional trading at $39.95 ticking over.

However, in June the rampant headlines highlighting the looming increase in electricity prices in Australia caused a spike in interest among residential and commercial customers looking to cover themselves against rising power bills, a phenomenon which may yet cause a significant increase in STC supply during the second half of 2022. Forward market activity picked up, with strips for Q3 trading around the $39.90 level in volume.

Energy Efficiency Markets (VEECs and ESCs)

During the past two years, the phrase “never a dull moment” has had frequent application in the VEEC market. Across Q2 of 2022, it was once again appropriate. With expectations of VEEC supply having climbed significantly on the back of the emergent refrigerated display cabinet methodology, spot prices fell sharply into the $50 range in April.

Having reached a low around $51.25 in mid-May, market sentiment was once again turned on its head via the announcement of the Minister for Energy’s intention to gazette changes to the methodology that would essentially cut the number of VEECs received for each install by 50 per cent. The move was made to correct an error in the method’s formula which ascribed too much abatement to the activity, with a brief consultation undertaken before a commitment to provide clarity on the decision by the end of June.

The move saw the spot price surge back up to $70 by late May before resoftening back into the mid $60 range across June.

June also saw the full effect of the new method, with close to 300,000 VEECs being uploaded each week across the month – a record for the scheme.

The normally steadier ESC market has also seen its fair share of volatility in recent months. The spot market collapsed from $35.50 in mid-April to a low of $29.50 in the second half of May as expectations of future supply increases from both the refrigerated display cabinets (RDC) and hot water saw an influx of selling while buyers thinned out.

Knowing that administrators of each of the two state-based schemes keep a close eye on each other’s efforts, when the proposed changes to the RDC method were released in Victoria, expectations about some kind of action in NSW grew. The spot price rebounded into the high $33 range in late May before softening in mid-June to sit in the low $31 range at the time of writing.

The above information has been provided by TFS Green and relates, unless otherwise indicated, to the spot prices in Australian dollars as of 22 June 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.