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Large-scale generation certificates expected to ease

Earlier this year, prices of large-scale generation certificates (LGCs) fell sharply as it became clear the renewable energy target (RET) of 33,000GWh by 2020 would be easily met.

On the assumption of a Labor win, the price started to rise again, with the potential to use LGCs to help large emitters meet a more ambitious emissions reduction targets through the safeguard mechanism.

Those hopes have now evaporated with prime minister Scott Morrison making it clear there will be no change to his government’s modest emissions reduction target of 26-28 per cent.

Morgan Stanley analysts said in a note to clients, “We anticipate that LGC prices could ease from here.”

“Under a returned Coalition government we see little scope for additional LGC demand.”

Some industry experts state it’s a complete change in position by the Clean Energy Regulator (CER), the body charged with managing the RET and other policies.

The legislation allows for energy retailers to avoid buying up to 10 per cent for their obligation and ‘carry it forward’ and to pay a penalty price if the shortfall is greater than 10 per cent.

That shortfall penalty is $65/MWh, which effectively means the equivalent of $93/MWh as the expense is not tax deductible. However, it can be reversed if the shortfall is made up within three years.

Some retailers have chosen this as part of their management strategy, reasoning that paying the penalty when the price is high (as it had been for a few years), and then buying cheaper LGCs at a future date, was a smarter and cheaper way of managing their obligation.

When ERM did this in 2017, it was named and shamed by the CER for not acting in the spirit of the act, although it made a lot of money doing so – a net profit of $35 million to $45 million to be realised over the 2019 and 2020 fiscal years, according to CEO John Stretch.

When Alinta did this a year ago, barely a murmur was raised. And last October, the CER issued a statement that actually encouraged retailers and other obligated parties to adopt this strategy.

“Given that the Renewable Energy Target will be clearly exceeded, the Clean Energy Regulator has no objections to the use of shortfall in the expectation that clients would true up these positions with LGCs in a subsequent year, as allowed for under the law,” it said in a statement.

While LGC prices are out of Choice Energy’s control, we will do everything we can to ensure the best advice and pricing is given by our partners when systems are ready to sell their LGCs.

A business does not install solar to get certificates. It installs solar to generate its own electricity on site. Businesses use money they save on their energy bills to go towards paying for a solution, which depending on your chosen term, will then create FREE day time power regardless of LGC value.

Please get in touch with our team if you have any questions or concerns.

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