Price volatility in Large-scale Generation Certificates over 2015 - what is the outlook for 2016?

09 Dec 2015Archived News Mark Asbjerg Climate Change Matters

The protracted negotiations surrounding the review of the Renewable Energy Target (RET) scheme and the reduced energy target has had a significant effect on the price movement and volatility of Large-scale Generation Certificates (LGCs) throughout the third quarter of 2015. 

The negotiated changes to the RET can be summarised as follows:

  • Reduction of the Large scale Renewable Energy Target from 41,000GWh to 33,000GWh
  • Eligibility of the burning of native wood waste as a certificate generator
  • Creation of a ‘wind commissioner’ to hear complaints surrounding wind developments.

Following the passing of the RET legislation by the Senate on 23 June 2015, LGC prices have increased to seven year highs, maintaining prices above $70 per certificate. This trend is illustrated in the figure below. 
 

Figure 1: LGC historical spot and futures prices

LGCs-update.jpg

 

This unprecedented price movement has come on the back of significant trades in the spot market, as the market is concerned about the number of committed projects over the next 12 months. The protracted negotiations surrounding the revised RET target did effectively put any investment in large-scale renewable projects on hold, leading now to a short to medium term shortage of LGC certificates.  

Future price movements will depend on the quantity of approved large-scale renewable projects in the coming years. Policy certainty, combined with the high LGC price should serve to encourage increased levels investment in new projects and ultimately put downward pressure on the current high certificate prices.
 

 

 

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