Liable parties (including energy retailers) have an obligation to purchase a certain number of each type of certificates: STC, LGCs and VEECs. Each certificate type is traded in a separate market and the supply and demand for each type of certificate varies, as does their price.
The LGC and VEEC markets operate with annual surrender dates, meaning liable parties must surrender their obligation once a year. The STC market has quarterly surrender dates whereby liable parties have to surrender their obligation 4 times a year.
Those selling STCs have the option to either sell their STCs in the wholesale market, or purchase them through the Clean Energy Regulator Clearing House. Liable parties need only use the Clearing House if they cannot buy all the certificates they require in the wholesale market. If liable parties do not buy enough certificates in a year, they have to pay a penalty price for their shortfall.
The wholesale certificate market
Large buyers and sellers of certificates (STCs, LGCs or VEECs) trade through the wholesale market with minimum parcel sizes of 5,000 certificates. The price for a parcel of certificates is called the spot price. The wholsesale (or spot) price is for certificates already created and ready for sale. Forward contracts can also be entered into to sell certificates that will be available in the future. Like any other commodity, the price for certificates is determined largely by supply and demand, and this can make wholesale prices fluctuate considerably.
The penalty price liable parties pay for their shortfall is effectively a ceiling (or maximum) price on the market and the spot price would only reach this level if there were high demand and no supply. There is no floor (or minimum) price.
The STC Clearing House
The STC Clearing House is effectively a queuing system for the sale of STCs.
STCs may be lodged in the Clearing House and liable parties may choose to purchase STCs from the top of the queue at (currently) a fixed price of $40 per STC. If purchasers use the Clearing House it is likely that they will wait until the end of the quarter to do this, to avoid carrying capital.
This is the most expensive way to purchase STCs therefore it is likely that liable parties will only purchase from the Clearing House as a last resort – that is, if there are not enough STCs offered for sale in the wholesale market to meet their liability. As a result, those who lodge their STCs in the Clearing House have no guarantee of when they will be paid for their certificates.