CORE Markets Head of Carbon and Renewable Markets Marco Stella provides a snapshot of Australia’s clean energy sector.
Large-scale generation certificate market
The large-scale generation certificate (LGC) market continues to confront the challenges caused by growing surpluses and prices continued to soften across January and February. Spot prices dropped steadily from the mid $30s to a low of $25.50 by the end of February, with the market sitting around $26.00 at the time of writing.
The forward curve followed suit, with Cal25s offering little premium over spot and even trading at parity at times. though the differential ultimately returned to something close to the true cost of carry with the market sitting at $27.00 at the time of writing.
Cal26s saw better liquidity than further-dated contracts but fared no better in price, trading between the low $26s and $23s where it currently rests.
The Cal27s struggled to attract buying interest, seeing only sporadic trades as prices fell from $21.00 in late January to $16.50, widening the spread significantly to earlier vintages.
February saw the annual compliance surrender come and go, leaving approx. 21 million LGCs carried forward, a sharp rise from the 14.5 million rolled over from 2023 into 2024. Later in the month, the market also received the Clean Energy Regulator’s (CER) newly released 2025 voluntary surrender forecast of 12.5 to 15 million LGCs for the year, while confirming that 10.4 million were cancelled in 2024 for non-Renewable Energy Target (RET) purposes. Though higher than last year (as expected given 2025 is the year the 100 per cent renewable commitments were made by many of the country’s largest companies and brands), the question remains as to whether this will be sufficient to offset the considerable growth in supply from new projects as they come online across the year.
Small-scale technology certificate market
February saw the Clearing House return to deficit, peaking at circa 2.5 million small-scale technology certificates (STC) coinciding with the Q4 surrender. Resultingly, spot market trading activity ground to a halt. The forwards were also mostly quiet, with only a couple of trades including a May-Dec25 strip at $39.80 in 10k/pm and Sep+Jul+May25 combo at $39.85 in 10k/month.
On the regulatory front, the CER released the 2025 Small-scale Technology Percentage (STP) at 13.89 per cent, a hefty step down from the previous year’s target, requiring 26.1 million STCs to be acquitted for the year (equivalent to approx. 502k per week).
At the time of writing, the Clearing House is nearly back in surplus with a current deficit of 45k. Though, with creations year to date averaging ~442k per week, it is likely that Q1 and Q2 will see the Clearing House used at times. The trajectory of later quarters will depend on the strength of certificate creation throughout the year.
Energy efficiency markets (VEECs and ESCs)
Similar to the shock-drop and eventual recovery of prices across late 2024, February in the VEEC market saw prices take another hard reset. Prices lost ~4 per cent in the first two weeks on the month, falling from $112.00 on 31 January, to a low of $107.60 by 14 February. This was a result of supply-side pressures, with February seeing a gradual uptick in VEEC creations through the registry, while forward selling activity climbed.
Following December’s pattern, the price has since started its recovery, with refreshed buying interest emerging to stabilize prices. At the time of writing the spot price was sitting at $110.00, with a substantial discount still prevailing for the forward market owing to perceptions of credit risk.
Late February also saw the VEU announce an extended surrender deadline for retailers from 30 April to 30 June 2025, providing additional flexibility and helping to mitigate potential liquidity constraints in April. However, a key piece of legislation remains unsolved – the ‘vintage rule’. As at the time of writing certificates created after 3 January are technically ineligible for the upcoming surrender, rendering the extension essentially meaningless until the vintage rule is remedied. This was proposed in late 2024, though has yet to pass through parliament.
ESCs continued to list through the remainder of Jan and Feb, briefly breaking below the $14.00 level to $13.85 in mid Feb. Then, come early March prices spiked following the release of proposed ESS rule changes. Of note, proposed changes include: the discontinuation of the commercial lighting six months after gazettal, incentives for new gas boilers to be removed, updating certificate conversion factors for heat pumps and the consideration of a telemarketing and door-knocking ban. The proposed changes are due for response by 4 April 2025.
While the changes would have mixed impacts on certificate creation, the market’s overall reception to the proposal was initially bullish, with prices rising sharply to touch $16.40 on 5 March, albeit on modest volumes. Prices have retraced, more volumes clearing in the mid-low $15s, the spot resting at $15.25.
This article featured in the April edition of ecogeneration.
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