The Clean Energy Regulator’s (CER’s) quarterly carbon market report is a pulse-check for buyers, sellers and investors. It’s a way to identify trends and inform decision-making – especially in relation to your company’s energy management strategy.
In this breakdown of the March 2024 report, we’ll cover the headline items: a stable ACCU spot price in the face of increased supply, the increase in LGCs held for voluntary purposes, and a reinvigorated STC spot price.
ACCU Spot Price Remains Stable
The spot price for generic ACCUs held stable between the start and end of the quarter at $33.75 per unit. Given that the total supply increased by 2.4 million quarter over quarter, demand for ACCUs is clearly keeping up – which is good news for producers and sellers.
The report also noted that the premium for HIR units dropped over the quarter. While the HIR scheme (under which ACCUs could be earned through human-induced regeneration of native forest) closed for new registrations in 2023 – which, typically, would cause a scarcity-induced rise – the drop indicates that buyers are changing their attitudes towards unit co-benefits.
Increased compliance-related demand means that co-benefits don’t necessarily need to be clearly defined to elicit above-market prices.
ACCU Co-Benefit
Some Australian carbon credit units (ACCUs) have co-benefits (also known as non-carbon benefits).
A generic ACCU is produced by a registered project that either reduces carbon output or sequesters it (for example, by storing it in plants or soil). Some ACCUs, though, are produced by projects that have non-carbon-related benefits, such as improving biodiversity or increasing soil health.
These ACCUs have attached co-benefits. Organisations that surrender/cancel ACCUs with co-benefits can advertise that their actions have helped deliver the co-benefit in question, which can be helpful for ESG goals and marketing.
Takeaways
Demand for ACCUs is only increasing. Producers should consider maximising production over the next two quarters. Investors, on the other hand, could benefit from acquiring and holding units until the spot price peaks ahead of the March 31 deadline for Safeguard surrenders in 2025.
More Companies Hold LGCs
The total number of large-scale generation certificates (LGCs) being held by companies has increased – but so has the percentage of LGCs being held for voluntary purposes.
At the end of Q1 2024, the majority of LGCs (4 million) were held by companies with certificate liabilities under the Renewable Energy Target (RET) scheme. (In Q4 2023, that figure was at 20 million, but dropped sharply following the 14 February deadline to surrender certificates for the previous year.)
Another 2.4 million LGCs were held for non-RET compliance purposes, like paying shortfall charges (which are essentially fines incurred when a company fails to surrender enough certificates for a given year). The majority (5.1 million) of LGCs were held by power stations, which can create and hold LGCs to sell on the market.
But, perhaps surprisingly, 4.9 million certificates were held for voluntary purposes. Those could include everything from meeting the requirements of voluntary reporting schemes to corporate ESG goals. While that’s a slight percentage drop from Q1 2023 (23.22% of the total market versus 24.83% in 2023), longer-term trends do indicate companies are increasingly concerned with hitting voluntary targets.
Importantly, the total of non-RET LGCs has dropped from 24.13% in 2023 to 18.96% in 2024 – which could have consequences for companies that need to purchase certificates to service their RET liabilities.
Takeaways
The LGC market has tightened because more companies are holding certificates. If you have a RET liability, talk to your energy management analyst about your purchase options.
STC Spot Prices Restabilise
Following a sharp drop in October 2023, the spot price for small-scale technology certificates (STCs) has returned to $39.90. That’s around the same place it’s been hovering since March 2022.
The increase could be due to 6,000 fewer rooftop solar systems being installed compared to the same time last year, although an increase in the size of those systems has meant that there’s only been a 3.13% drop in total gigawatts installed.
A more likely reason is that demand for both STCs and LGCs is increasing – RET-liable companies need certificates, and that’s probably enough to offset the reduced installation rate (which could be due to factors like the shortening deeming period for STCs and increases in cost of living).
Takeaways
Businesses that want to install solar systems of up to 100 kilowatt-hours should factor in STC sale prices. While spot prices tend to peak just before each quarterly surrender deadline, it’s likely that increased supply will continue to drive average prices up and to the right. Talk to your energy management analyst about whether you should create STCs yourself or sell the right to a registered agent.
Summary
Australia’s carbon market is complex, especially for small and mid-sized businesses experimenting with certificate production and ACCU acquisition. If you’re interested in learning more about what the latest market movements mean for your business – or how you can start developing your own carbon strategy – contact us to schedule a consultation.
As independent analysts with fixed, site-based pricing, our recommendations aren’t influenced by energy producers or wholesalers. Instead, we help you develop a tailored energy strategy and time your actions appropriately – whether you’re selling differentiated ACUs or negotiating a new energy contract with retailers.