In a regular monthly column, NextGen outlines developments in the market for small-scale renewable energy certificates (STCs) and energy efficiency certificates below. Tomorrow they will provide a further run-down on developments in Large-scale renewable energy certificates and wholesale electricity market.
2012 has been a year of surprises in Australia’s domestic environmental markets.
Pricing outcomes in both of the nation’s renewable energy markets, namely that of Large-scale Generation Certificates and Small-scale Technology Certificates have been lower than what was broadly anticipated in the latter part of last year. Meanwhile, the nation’s two energy efficiency markets (the New South Wales Energy Saving Scheme and the Victorian Energy Efficiency Target) have experienced contrasting plights.
Small-scale Technology Certificates (STCs)
In Australia’s most liquid environmental market, the prospect of what is essentially guaranteed to have been the scheme's largest ever quarterly obligation did little to bolster flagging prices. While the spot market began the year at $32.55, the overall trend since then has been one of steady softening.
Across the last week the market has recovered off the 2012 low ($25.75) and was trading at midday on Friday at $27.00.
The generally languid pricing outcome across the early part of the year has been ascribed to the short-term surplus of STCs, primarily owing to an explosion of domestic photovoltaic system installations in 2011. To provide some indication of its quantum, by the 31stDecember 2011, there were roughly 22.5 million registered STCs in excess of the total 2011 obligation (which was circa 28 million).
In accordance with the somewhat subjective design of the SRES, this surplus was added to the 2012 target which now totals approximately 44.8 million STCs (22.3 million for the 2012 ‘base figure’ plus 22.5 million of the 2011 surplus) and is expressed via the Small-scale Technology Percentage of 23.96 per cent.
Of major importance a fortnight ago was the passage of the final date for first quarter compliance (28thApril). Across the latter part of April, obligated entities surrendered STCs in accordance with their statutory obligations under the small-scale component of the Renewable Energy Target.
As the final compliance date passed, the first quarter surrender tallied approximately 14.7 million STCs. While this figure was roughly 1 million fewer than expected, it has none-the-less gone some way toward eroding the 2011 surplus.
The chart above illustrates total (cumulative) STC submissions and registrations as well as the total (cumulative) obligation since the scheme’s commencement in January 2011.
While the blow out in the surplus is clear to see across 2011, the first quarter surrender has gone some way toward eroding the oversupply carried forward from 2011. In fact, of the 22.5 million STCs that were registered at 31 December 2011 (i.e. the number over and above that year’s 28 million target), only 14.6 million now remain. A further 5.6 million of those will need to be surrendered against the second quarter and third quarter surrender before the remaining number is surrendered in the final quarter of the year.
That deals with the 2011 oversupply. Looking to the 2012 STC submissions versus the base figure of the target (22.3 million) however, and we see the opposite trend taking place. The chart below illustrates clearly the fact that in terms of 2012, the market is building another surplus (difference between the grey and green lines), which as of early May is at approximately 4.3 million STCs (though this figure could be slightly less depending on the result of audits).
While this surplus is nowhere near as significant as the one accumulated in 2011, it is none-the-less fortifying the short-term STC buffer available for liable entities’ surrender. Returning to the STC Supply and Demand chart, as depicted by the green line, whilst the current surplus of registered STCs has fallen, it still remains above 17 million. And because of the cyclical nature of the surrender (i.e. quarterly, with the next in late July), the buffer appears set to build again over the next two and half months before it is next eroded.
In the nation’s two state-based energy efficiency schemes, the New South Wales Energy Savings Scheme and the Victorian Energy Efficiency Target, the last six months have brought considerably different outcomes.
While prices in the spot NSW Energy Saving Certificate (ESC) market have been remarkably stable, pricing in the Victorian Energy Efficiency Certificate (VEEC) spot market has proven far more volatile.
The VEEC market’s volatility was essentially the result of a shortage of 2011 compliant certificates across last year which caused the spot price to rally to the scheme’s shortfall penalty price ($41.23). In the latter part of the year, the highly improbable then occurred with a massive spike in certificate creation emanating from stand-by power controllers which then saw the spot market fall to the low $20s. In recent days the spot market has been trading at $23.00.
Pricing in the spot ESC market has been particularly stable across the last 6 months owing to an expectation that the market continue to be short, or at least closely balanced, as it has been since its inception. Since late 2010 the spot ESC market has been trading above its nominal (adjusted) shortfall penalty level which for 2011 was $23.99. This is a highly infrequent outcome when looking across the Australian environmental markets landscape.
More recently, with expectations that supply constraints will ease across the coming months the spot market for 2012 eligible ESCs has traded to $28.50, while the market for 2011 eligible ESCs has fallen to $29.50.
Marco Stella is a Senior Broker, Environmental Markets and editor of The Green Room at Nextgen, a wholesale energy and environmental brokerage firm. www.nges.com.au