Rebound in wholesale STC spot price

21 Sep 2011

Two months ago STCs were trading in the low twenties and had been for several weeks.  Since the all time low of $19.75 the price has increased by almost 60%.  The reason for the sudden rise can be attributed to changes in both the supply and demand of STCs over the longer term. 

As with most markets, price movements can occur on the basis of anticipation as well as fact.  The ORER had indicated that they would release a revised non-binding STP (Small-scale Technology Percentage) for 2012 before the end of July.  The STP determines the total number of certificates that will need to be bought by liable parties i.e. the total demand for 2012.  In the last week of July, the market anticipated that the revised STP was going to be favourable and the price started to rise.  Late on the last business day of the month, the revised target of 38.5 million certificates was announced.  When trading recommenced the following Monday, the market reacted positively and the price continued to rise.  The widespread belief amongst market participants was that the increase in the 2012 target by more than 7 million certificates would be enough to absorb the oversupply in the market created over the first two quarters of 2011. 

Of course the oversupply of certificates has already been dealt with, in part, by the accelerated decrease of the solar multiplier from 5 to 3 from 1 July.  While there was a short lived bounce in the price following that announcement, it was clear that the reduced multiplier would only impact future creation and would not resolve the enormous oversupply from the first six months of the year which saw the annual target met in June.   By August the impact of the reduced multiplier was becoming apparent.  While certificate creation had peaked at over two million per week in June, weekly certificate creation during August averaged 1 million, with September’s creation looking to be lower still – around 800,000 STCs per week.  The slowdown in supply has helped the STC spot price recover to reach a recent high of $32.25 at close on 16th September before retreating to $31.60 earlier this week. 

Although we can surmise the reason for the strong price rise after the fact, what most people want to know is when is the STC price going to get near the clearing house price of $40?  The answer to this question will depend what the actual STC Target for 2012 becomes and how much of a downturn in PV installations will be experienced in 2012. The self-correcting nature of the STC scheme means that we would expect that supply and demand will come back into balance towards the end of next year and at this time we expect the clearing house to come more into play.

Anthony Williams
Manager Environmental Markets