Marco Stella, co-founder of CORE Markets, provides a snapshot of Australia’s clean energy market. All information is correct as of 21 October, 2022.
Large-scale Generation Certificate (LGC) market
The spring months have coincided with a surge in LGC prices and volatility, with the spot contract surpassing the $70 mark for the first time since October 2018 then gapping sharply lower before further volatility ensued.
The movements appear to be a reflection of the ongoing uncertainties around the size of the voluntary surrender for 2022, and the likely impact it will have on the supply/demand balance at the end of the year. Yet they have likely also been impacted by trends towards volatility seen in other markets and greater involvement from speculative participants.
While the Cal 22 ($66) and Cal 23 ($59.75) vintages have shared in significant price movements, the mid and latter parts of the curve – from Cal 24 onwards – have been more stable, with levels at the time of writing as follows:
- Cal 22: $66
- Cal 23: $59.75
- Cal 24: $50.25
- Cal 25: $43.75
- Cal 26: $40.25.
Small-scale Technology Certificate (STC) market
While STC submissions numbers grew coming out of winter, they have not become sufficiently large to overcome the previous deficits that are a result of the 2022 target having been set too high. Only on two occasions in 2022 has the weekly submission figure reached the weekly target of 819,000, suggesting the 2023 target will need to be substantially lower.
As a result, activity in the STC market has been fairly reserved with the spot market trading modestly between $39.85 and $39.95. Some activity has occurred in the forward market with trades for Q1 taking place at $39.75.
Energy Efficiency Markets (VEECs and ESCs)
By recent standards, September brought a period of stability in the VEEC market with the spot trading between $68.50 and $70 across most of the month as a steady flow of VEECs made their way to the spot market via the recently halted refrigerated display cabinet activity.
October saw an increase in prices with the spot surpassing $73 as the spot supply dried up.
While a large surplus of VEECs exists, prices remain elevated because of a lack of confidence in future creation opportunities given the lack of development of new activities and the substantial changes that are looming on 1 February, 2023, when the removal of residential lighting and the primary source of commercial lighting will combine with a substantial reduction in the scheme’s emissions factor to reduce supply.
The ESC market had been largely stable until mid-September when a significant increase in volatility ensued. The spot price jumped from the low-to-mid $33 range into the mid-$36 range, before softening to the mid-$35 range before taking another step up to $37 in early October, only to again lose ground to $35.85 at the time of writing.
The price movements coincided with an improved period in weekly registrations, yet still remained below the level required by the target. A substantial surplus of ESCs still remains available in the market, suggesting price movements may reflect expectations about future ESC supply outcomes.
The above information has been provided by CORE Markets and relates, unless otherwise indicated, to the spot prices in Australian dollars as of 21 October, 2022.
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.
