The spot for enviro market support?

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.

Small-scale Technology Certificates (STCs)

In the face of growing STC submission numbers and the constant stream of bullish news surrounding the prospects of future small-scale photovoltaic uptake, the spot STC market has found some support in recent weeks.

The reduction in the Solar Credits Multiplier, scheduled for July 1, has long been held as the likely cause of a would-be spike in the STC submission rate toward the end of this financial year. This level of expectation almost certainly contributed to the decline in the spot STC price experienced since February, when the first 700k submission weeks were witnessed.

While the market was forced to wait until May to see any discernible jump in the STC submission numbers, the spike has eventually come. As can be seen above (red columns), just over one million STCs have been submitted to the Regulator in each week of the last fortnight, the highest of the year to-date.

Looking at the pattern of STC submissions (red columns) experienced last year, it is clear to see precisely how the cycle of PV installation is at its peak between April and June. While this year the market has broached (and now surpassed) one million STCs submitted in a single week, last year the apex occurred above the two million mark.

The chart does also provide a good indication of the level of consistency of the STC submission rate across the early part of 2012 when compared to 2011. Though there may still very likely be further increases to come, the trend has not been one of consistent growth.

Yet just at the time when the STC submission rate was set to reach its peak, therefore putting the most theoretical pressure on the spot, the market appears to have found some support. Having reached a low of $25.00 just under a fortnight ago following a two week period of persistent softening, the spot market has since rebounded to trade within the $25.00-$25.80 range since then, with recent days seeing the market toward the upper limit.

As one would expect in most markets, there are mixed views as to whether or not the $25 mark constitutes the 2012 low at the height of the STC submission cycle. In 2011, with submission numbers soaring, the market rebounded off its sub $20 lows in early July to trade higher for the remainder of the year. With expectations of continuing strong PV sales into the future, there are also those putting the case for another attempt at the $25.00 mark in the near future.

Energy Efficiency

Activity in the nation's two state-based energy efficiency markets continues to bubble away, with some unrelated convergence in their respective prices.

In the Victorian Energy Efficiency Target (VEET), the spot market has begun a mild recovery of sorts off the recent low of $23.00 experienced in the early part of the year. Having previously been inflated by the expectation that the 2011 compliance year would be short, the spot VEEC market had been trading at close to the market's nominal shortfall penalty ($41.23) late in 2011.

Seemingly against all odds, a major spike in VEEC creation in the latter part of the year from the newly approved Standby Power Controllers (SPCs) saw the market for 2011 compliant VEECs eventually deliver a small surplus. The spot price then fell rapidly to a more ‘normal' level to reflect the fact that there remained essentially a full year ahead for the creation of VEECs to meet the increased 2012 target.

More recently speculation surrounding impending changes to the rules for creation via SPC installation, which are believed to be likely to bring an end to the ‘giveaway' business model for that product, has led the market to trade above the $24 mark. With the 2012 target of 5.4 million (essentially double that of 2011) there is also plenty of discussion in the market as to what role the newly approved, but yet to be completely finalised methodologies for commercial lighting will play in the achievement of that target.

In New South Wales, the Energy Savings Scheme (ESS) has experienced some modest softening in recent times. With the extended cut-off date for liable entities to pay the shortfall penalty for any outstanding 2011 obligation fast approaching (30 June), the clock is ticking for the premium that has to-date been payable for 2011 compliant ESCs.

Across the early part of this year the premium usually in excess of $1.00 has been paid for 2011 compliant ESCs, reflecting the fact that the 2011 market appeared likely to be either closely balanced or slightly undersupplied. Activity in recent days seems to suggest that there may no longer be any buyers for the 2011 vintage, meaning all VEECs would default to the 2012 price.

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.