Victorian Energy Efficiency Certificates (VEECs)
Victoria’s energy efficiency industry owes much to actions of the Abbott Government who, along with Independent MP Geoff Shaw fatally injured the re-election prospects of the Napthine Government. In line with what the polling had been saying for many months Labor won Saturday’s election and reinforced the recovery in the spot VEEC market that had taken place across November.
With the Victorian state election looming and the Andrew’s led Labor Party well ahead in the polls, the spot VEEC market strengthened across November. Beginning the month in the mid $15s the spot mad it to a high of $18 in the second half of the month before settling to trade in the mid $17s until the election. Following Andrew’s election the spot market stepped back up to $18.00.
It was a busy month in the spot market although spot volumes were dwarfed in comparison to the forward market were activity for 2015 forwards in particular was very large.
The sizable differential between 2014 and 2015 eligible VEECs grew across the month with a number of instances in which the spot/short forwards traded over $1 above the forwards for 2015 compliance.
VEEC submission numbers remained strong across November with the four-week rolling average maintained at approximately 80k per week.
Yet the major story for the month was clearly an election in which despite the difference in policy platforms between the major parties being minimal, on the issue of the VEET scheme, Victorian voters had a clear choice. The Coalition, were it to retain government, would seek to repeal the VEET scheme following a final (reduced) 2015 obligation of 2m. In order to achieve this it would need to pass the repeal legislation through both Houses.
Labor for its part threw its weight behind the scheme, saying it supported its continuation, though it did not confirm the existing 5.4m target as the one it would implement in 2015. If no changes were made to the legislation by 31 May 2015, then the 5.4m target would remain either way.
Sometimes you win elections from opposition because ‘it’s time’ and sometimes you are gifted a set of circumstances that no amount of hard work can beat. For Victorian Labor, it was the Liberal Party itself that hand-delivered those gifts via the antics of the former Liberal MP Geoff Shaw across the last two years and then via the actions of the Abbott Government over its first year in office.
With the Napthine Government becoming the first single term government in more than 50 years, the outcome historic and clearly damning for the Coalition at a state a federal level. For the state’s energy efficiency industry the outcome is a godsend, with thousands of jobs in dozens of companies now appearing secure.
While 5.4m remains the most likely outcome for the 2015 target, until the incoming Andrews Government explicitly outlines its position there remains a small degree of uncertainty as to whether that will happen. As to what target it will nominate for 2016 and beyond it is likely some form of review will be undertaken to inform that decision.
NSW Energy Savings Certificates (ESCs)
Steady price improvements on sporadic trade, modest registration volumes and a somewhat vague though nonetheless welcomed announcement by the NSW Government on the future of the ESC market were the hallmarks of November in the ESC market.
Unlike its Victorian counterpart, the NSW Energy Savings Scheme (ESS) has enjoyed bipartisan support and, when it was announced early this year that the state’s government would review the scheme with the intention of expanding it to make use of it in further the state’s energy efficiency ambitions most were confident that this would indeed occur. Since then however, the state’s Coalition Government has been embroiled in anti-corruption woes that had previously been the realm of NSW Labor, in the process losing a Premier. Market participants had been hoping that some news would emerge in relation to the review by July, but that month came and went without even a whisper.
In November a hungry marketplace finally got some word from the Baird Government, but it unfortunately constituted only an entree, with the main course still apparently some time off. The good news for scheme participants is that the Baird Government has decided to expand the ESS out to 2025 and to include gas, an attempt to create an incentive to improve gas efficiency at a time when the state’s gas prices are on the rise.
The gas targets will be incorporated into the existing scheme via a conversion factor and it will be electricity customers that cover the increased obligation. The changes are expected to take effect in January 2016.
While this is undoubtedly good news for the future of the scheme, it is at present completely unclear precisely how much of an increase this change will represent to the ESC target moving forward. As it stands, owing to reductions in electricity demand (among other things) the current target now appears to peak in 2014 at somewhere around 2.5m before declining slightly in 2015, the year in which the original target was to peak. While there are those in the industry that are hoping for a doubling of the target out to 2020, there are other who believe any increase will be more markedly less significant than that.
To the market and the spot began the month in the high $10s and by mid month had reached the $12.00 mark on the back of very modest trade volumes as supply began to dry up.
Following the mad rush to register ESCs by the end of September and a late alteration of the deadline to allow some pre-approved registrations under the old rule after that date (most of which came in October), November confirmed the consistently lower ESC registration levels, with the 4 week rolling average sitting at 20k by month’s end.
In the latter part of the month the market appeared to move higher without any trades reported (the bid/offer spread implying a spot in the high $12s) though it was only on Monday that the market managed a number of transactions at $13.05. The new level has brought the market to a 6 month high.
The supply/demand balance still clearly indicates a market that is well oversupplied. There are currently 4.6m registered ESCs available to meet a combined 2014 and 2015 obligation of circa 5m, with more than 16 months in which to create more. On the other hand the modest underlying rate of registrations (which many believe reveal the difficulty in creating at the current price levels), combined with aspirations for a considerably expanded scheme in 2016 have some participants optimism for further gains.
Marco Stella is senior broker, environmental markets at TFS Green Australia. The TFS Green Australia team provides project and transactional environmental market brokerage and data services, across all domestic and international renewable energy, energy efficiency and carbon markets.