This article was originally published by Green Energy Markets.
Last Friday something remarkable happened. The spot price for Large-scale Generation Certificates (LGCs) rose above the price for Small-scale Technology Certificates (STCs) for the first time since March 2013, and to the highest levels seen in more than 3 years. As at close of trade on 20 February, the spot price was $40.40 with STCs trading at $38.95.
When the Renewable Energy Target (RET) was split into its Large-scale and Small-scale components on 1 January 2011 there was initially considerable volatility for STCs, fuelled by the surge in PV installations around that time. But for the last two years, as feed-in tariffs have been reduced and multipliers on the number of certificates wound back, STC prices have been very stable, consistently sitting just below the $40 price cap.
By contrast, the pattern for LGC spot prices has been one of extreme volatility with prices over the last two years ranging from under $22 in June 2014 to more than $40 in February 2015.
Looking at key movements over this period, it is clear that LGC prices have been hostage to the political and policy uncertainty associated with the review of the RET. The LGC price immediately crashed in February 2014 after the Government announced that Dick Warburton would chair the review panel. A few months later in June, when Clive Palmer announced that his party would not support any changes to the RET, there was another obvious market reaction with the spot price gaining back much of its lost value.
Closing daily spot prices from 1 January 2012 to 20 February 2015
This month began with the LGC spot price already having recovered to $34.60. But the announcement of the vote on a spill motion for Liberal Party leadership triggered the beginning of this recent surge. The rise then gained more momentum following several media reports that the Government has softened its position on the RET and is prepared to agree to a target in the low 30,000 GWh range. The Labor party’s position is for a target within the mid to high 30,000 GWh range.
Considering Friday’s milestone spot prices, it seems evident that the market is taking the view that the position of the parties is getting closer, and that prospects for a resolution are improving.