STC review for the first half of 2012

23 Jul 2012

The first six months of 2012 saw the STC price fall 15%. As can be seen in the chart below, the price experienced a long consistent fall for the first five months of the year. In fact, the monthly closing price was lower than the monthly opening price for every month from January to May.  This trend was broken in June and while the extent of the price rise during June was a response to the finalization of the Queensland premium feed-in tariff (44 cents/kWh) the spot price had already shown some resilience during June.

The continued pressure on price for the first five months of the year was a simple response to the level of supply on the market. With the multiplier scheduled to fall on 1 July, certificate creation for the first half of the year was always going to be greater than during the second half.  Irrespective of the expected level of total creation for the entire year, the creation bias of the first half of the year, compounded by the high levels of creation in Queensland meant there was sufficient liquidity coming onto the market each quarter for the liable parties to meet their liability without having to bid aggressively for certificates: the sellers came to them.  Queensland creation levels meanwhile were well above forecast and forced analysts to revise their forecasts for total over supply.  With continued upward revisions to forecasts and no indication that Queensland was preparing to reduce their feed-in tariff, market sentiment was bearish toward STCs putting further downward pressure on prices.

By the end of June however, the multiplier reduction was imminent and Queensland had abruptly announced that the feed-in tariff would be reduced to 8 cents/kWh. Total oversupply estimates were now as high as 14 million. With the high number of available certificates held by inattentive parties, the clearing house balance above 6 million and residual balances held by liable parties each quarter in the millions, this figure is not as significant as it seems.  The level of certificate inertia means that quarterly supply (beyond July 28 settlement) looks unlikely to meet surrender requirements. The combined effect of these factors influenced the price to increase.

So should we expect to see certificate prices continue to increase?  The manner by which the Queensland feed-in tariff will transition from 44 cents/kWh to 8 cents/kWh has created even more uncertainty. Following the announcement, potential solar PV customers had two weeks to lodge an application with their distributor and still receive the higher feed-in tariff. During these two weeks, 110,000 applications were received. To put this into context, over the past twelve months, the number of PV systems in Queensland creating STCs was 101,000 and across Australia it was 325,000.

While not all of the applications will be converted to sales, the level of conversion which does occur will have a significant impact on certificate supplies for the next year.  This uncertainty makes it very difficult to predict prices over the medium term and is likely to influence prices for some time to come.

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