Enviro markets update: STCs and energy efficiency

Small-scale Technology Certificates (STCs)

The strongly positive run in the nation's small-scale technology certificate market came to an end in September, but not before reaching an eight-month high. For those with an eye to the future, the market is poised for the release of an update to the non-binding estimate of the 2013 small-scale technology percentage, as well as for the Climate Change Authority's RET Review Discussion Paper.

The seemingly insatiable desire for STCs, which drove the spot price to an eight-month high of $32.60 in the second week of September came to an end just days before submissions to the RET Review were due.

The extent of the rally, which saw the spot price increase over 25 per cent on the back of more than eight consecutive weeks of gains had surprised many onlookers, particularly because of the presence of the RET Review. While it is not at all clear what the result of the RET Review may be, there are few in the market who believe that if any changes are indeed to be made, those changes will positively impact STC prices.

Recent weeks have seen the remnant level of support in the spot market put to the test. The results have been mixed and the market fairly volatile; with first a drop below $30 late last week, followed by a recovery to the mid $30s in recent days. Despite the overall retraction, the spot market still finds itself well ahead for the financial year.

In terms of STC submission numbers, the last month has yielded some unusual results which are once again negatively correlated with the spot price. Initially, the downward trend in submissions seen since the Solar Credits Multiplier reduction on July 1 appeared clear, with the opening fortnight in September seeing a weekly average of 680,000 submitted. However, the latter part of the month brought a reversal, with a recovery which saw last week's number surpass 800,000.

For the STC market, the weeks ahead are bound to be an exciting time. The release of the update to the non-binding estimate of the 2013 Small-scale Technology Percentage (NBESTP) is imminent, with most expecting something to be released this week. The expectations for the number of STCs to be created in 2013 currently sit around the 16-19 million mark, depending on who you ask.

Add to that the likely surplus of STCs that will be registered at December 31, 2012 above the 2012 target (which will likely be at least 15 million) and a ballpark figure of 32-34 million is reached.

Following the release of the 2013 NBESTP, it will then be only a matter of weeks before the Climate Change Authority releases its RET Review Discussion Paper, which will provide a genuine insight into its views on the future of the scheme.

Energy Efficiency

In the energy efficiency space, the nation's two existing markets appear once again to be on diverging paths. The New South Wales' ESC market has continued to rally, while, following a period of stability, south of the border the VEEC market has in recent days lost some ground. Meanwhile further developments on the National Energy Savings Initiative have failed to materialise.

In New South Wales, the spot Energy Savings Certificate market continued its positive run – which has now extended into its third month – on the back of ongoing thin levels of liquidity and a modest, but in no way unwelcome increase in the rate ESC creation. On the back of expectations of an increase in supply, the spot ESC market fell to a low of $24.50 in July, where it remained for most of the month. Yet the significant increases in ESC creation, which was expected to flow form the commercial lighting methodology, remained elusive.

Across the last month however, the number of ESCs of 2012 vintage that have been created has continued to rise, and now sits just below the 800,000 mark. When combined with ESCs of earlier vintages which have not yet been surrendered, there are now just over one million ESCs available for 2012 compliance. In spite of the increase in the rate of creation across the last month, the spot ESC price has continued its recovery, reaching a four-month high over the last week.

South of the border, the spot Victorian Energy Efficiency Certificate (VEEC) market remained anchored to the $23.00 mark across most of September, despite the fact that there appears likely to be a healthy surplus of VEECs for 2012 compliance. In recent days the market has begun to slip to the point where the market has now reached the $22.50 mark.

With Stand-by Power Controllers continuing to shine, last week there were exactly 5.4 million VEECs classified as ‘registered', equal exactly to the target for 2012. A not insignificant number of pending certificates were also present suggesting creation numbers are yet to drop and that, therefore, a healthy surplus will be achieved for the 2012 compliance year.

On a policy front, the re-introduction of ceiling insulation as a VEET activity could be delayed once again with the Victorian government laying the groundwork to extend the ban until April 30 2013 in order to obtain more stakeholder consultation on the issue. Ceiling insulation had been an original VEET activity but was dropped with the introduction of the federal government's now defunct ceiling insulation program. That ban is set to expire on October 31st, and the notice released last week allows the ban to be extended.

However, the Baillieu government still has the option to let the ban expire if it pleases, a move which requires a delicate political balancing act given both the negative political connotations associated with the federal policy, as well as the strong energy efficiency outcomes that insulation offers.

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. The content above is sourced from excerpts taken from The Green Room.