The Victorian Energy Efficiency Certificate (VEEC) market can be volatile, with many market forces driving changes in the spot price of certificates. We have seen the VEEC market soften in recent times, dropping from approximately $78.00 per VEEC on around the 15th March, down to $51.25 on the 7th April.
Fluctuations in the VEEC price may be attributed to various factors, including current considerations such as;
- An increase in the supply of certificates from a new methodology supporting the installation of refrigerated display cabinets (RDC) and the expectation that the methodology will continue to increase in uptake. Speculation will occur as to how long the RDC’s are going to continue at current rates.
- Additional changes in creation methodologies are expected and will be intended to simplify the VEEC generation process and may make the certificates easier to create.
- Any increased supply to meet the set targets will reduce overall demand in the market.
- Previously the mainstay of VEEC creation, VEECs generated through lighting retrofits, are also being reduced.
The uncertainty of these and other factors will support high prices as obligated parties and speculators take positions. The VEEC market has been trading for over a decade and will continue at least until 2030, with the VEEC target for the calendar year 2022 set at 6.7 million certificates. However, the current creation rates of VEECs from solar projects are estimated to meet the target certificate volume by June-July. As of March 31st, 2,908,333 certificates had been created, equaling some 43% of the annual target achieved in the first quarter. Of course, any imbalance in demand and supply will normally lead to an adjustment of pricing to bring it back into equilibrium.
Due to the long timeframe required for additional methodologies to be implemented in the scheme, Ecovantage anticipate the oversupply will be countered by longer term concerns for supply and whilst the VEEC value may be volatile for a period, it will remain adequate to support some of the more expensive activities. In the short term, the recent price reduction has impacted the payback timelines of many projects that are on the horizon. However, despite this market fall, VEECs remain the most financially lucrative scheme for commercial solar and various other energy efficiency projects.
At Ecovantage, many of our commercial clients underway with the implementation of projects that generate VEECs have been supported by forward-secured trades made at the time of agreement, making these projects immune to market movements. Where suitable, forward agreements on VEEC pricing can reduce risk and are one of the ways we derisk the outcome of projects for our clients. Clients of Ecovantage can be confident in knowing that we have the capacity to secure certificate prices on their behalf in order to minimise potential risks associated with pricing, no matter the site size.
If you would like to learn more about how commercial solar projects can generate VEECs or how we can help you to manage your project risk, please reach out to one of our Energy Solutions Specialists.