Victorian Energy Efficiency Certificates (VEECs)
While it has proven a somewhat bumpy road, the decline in VEEC price continued across June with the success of commercial lighting deployment at the heart of the descent and the attainment of the 2016 target now likely in approximately a month.
The spot VEEC market began June at $18.00 and rallied to a high of $18.80 by the middle of the month. Once again however, the market then turned and softened progressively to a low of $16.50, a level not seen since November 2014.
The drop was enough to draw buyers back into the market, resulting in a recovery which saw the spot close the financial year back up at $17.70, but it wasn’t enough to prevent the spot from closing the month down for the 7th consecutive time. The market has since softened in the early part of July.
Behind the price decline remains the prospect of a large VEEC oversupply in 2016. Following the 2015 surrender, a surplus of just over 1m VEECs existed. Yet the success of commercial lighting across the first half of 2016 has seen a sharp increase in the weekly submissions numbers, with the 4 week rolling average sitting above 200k by the end of the financial year.
At current rates of submission, the 2016 target of 5.4m will be reached sometime in August, most likely early in the month. This means that everything that follows will become surplus and hence go toward the 2017 target. Precisely how large that surplus becomes depends on how strong submissions remain over the second half of the year.
If average weekly submissions were to fall to say 180k, then a surplus at the end of the 2016 compliance period would be in the vicinity of 4.3m, equivalent to 73% of the 2017 target. Should the average weekly submissions soften to 150k per week, the surplus would be 3.6m VEECs, or equivalent to 61% of the 2017 target.
The large number of forward transactions that have taken place across the last 12 months continue to provide cover for sellers. As the year passes however, more of these will roll off, leaving more participants exposed to the dramatically lower spot price. Whilst it is anticipated that this will have a major impact on residential activity, it remains unclear whether it will have a similarly sizable effect on commercial lighting.
New South Wales Energy Savings Certificates (ESCs)
In what was an active period, particularly in the forward market, the Esc market lost ground across June with the cut-off date for registration of 2015 vintage ESCs causing a spike in supply in the dying days of the financial year.
The spot ESC market began June in the low $26s and softened progressively across the month to reach a low of $25.30. The market did close the financial year marginally higher at $25.45, though has since softened again in July.
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.
