Clean Energy Market Wrap, Renewables

Clean Energy Market Wrap: June 2023

Marco Stella from CORE Markets provides a snapshot of Australia’s clean energy market. All information is correct as of 30 June, 2023.

Large-scale Generation Certificate (LGC) market

Spurred on by corporate buying, the LGC price continued to move higher during May 2023, peaking at $58.75 on 1 June. Prices then softened, with several sellers coming to the market looking to cash in before the end of the financial year.

Prices at the time of writing are:

  • LGC spots: $54.50.
  • Cal23: $57.00.
  • Cal24: $51.50.
  • Cal25: $42.00.

June saw the release of the Q1 Quarterly Carbon Market Report from the Clean Energy Regulator. The report shows the third consecutive quarter of more than one million voluntary surrender from private enterprise, while also predicting a growth in LGC creation between seven per cent and 14 per cent for 2023.

The Clean Energy Regulator suggests 432MW of new generation reached final investment decision in Q1, which shows the regulator is resisting much of the criticism facing the Guarantee of Origin scheme.

While the news was largely positive for LGC prices, they continued to soften, indicating many of the preceding gains had reflected the Quarterly Carbon Market Report outcomes.

Small-scale Technology Certificate (STC) market

The STC market continues to see illiquid conditions underscored by the ongoing clearing house deficit of nearly three million certificates, as of the time of writing. The market remains sceptical we will return to surplus in Q3 as creations grind along without showing significant signs of increasing. As a result, across May and June there was only one forward trade for 2024, reported at $39.35.

Energy Efficiency Markets (VEECs and ESCs)

The VEEC market rose steadily during May as supply constraints began to see prices rise. The spot market moved from $71.25 to $74 during the month. However, market participants could not have foreseen the rally in June, with prices reaching all-time highs on the back of news the Victorian Government will place a ban on telemarketing which is still a considerable lead generator.

The implementation of the ban on telemarketing for products covered by the Victorian Energy Upgrades (VEU) program will put a stop to cold calling. Additionally, from 1 July, 2023, there are now stricter requirements for accredited providers and scheme participants. These measures aim to improve compliance, including imposing penalties for misconduct by third parties involved in the program.

The government is also working on strengthening the ESC’s authority to promote independent and rigorous certification of eligible products, as well as ensuring suppliers do not gain any advantages from providing inaccurate information to the regulator.

Soon the consultation papers regarding the telemarketing ban and reintroduction of refrigerated cabinets will be released. On 29 June, the ESC published a media release stating regulatory action has been taken against businesses involved in non-compliant water heater installation, citing substandard installations that pose safety risks for consumers.

Restrictions have been placed on some businesses, preventing them from installing heat pump water heaters under the VEU until they can demonstrate compliance through independent audits. Other businesses have been subjected to installation conditions and reporting obligations.

The prices at time of writing are $82 in the spot, with 2025 forward contracts reaching $90.

The ESC market softened across May and most of June before an end-of-month recovery. The spot market ranged from $31 to $26.90 during those months, with the spot price at the time of writing at $29. Creation numbers have remained strong with a big June upload coming through as expected.

There has been a separation between spot and forward pricing as the forwards trade at high carry rates to the spot. It is the first time since early 2021 we have seen pricing in the $20s so this strong forward pricing may reflect buyers’ beliefs the market will not hold below $30.

On the contrary, the past 12 months’ supply is significantly higher than we are used to seeing, above seven million for the 2022-2023 financial year.

The above information has been provided by CORE Markets and relates, unless otherwise indicated, to the spot prices in Australian dollars, as of 30 June, 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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