Spot prices for large-scale generation certificates (LGCs) in Australia have plunged to AUD 39 (USD 27.5/EUR 24.3) apiece on February 14, 2019 from above AUD 71.90 on October 4, 2018, as the use of shortfall by liable entities has shifted LGC demand into subsequent years.
In an update on Friday, the Clean Energy Regulator (CER) said liable entities, those required to buy LGCs under the Renewable Energy Target (RET), acquitted 24.3 million certificates for the 2018 assessment year against a total liability of 28.2 million LGCs. The shortfall for the year is 3.9 million LGCs or 13.9% of total liability. The LGC surrender rate was 86.1%.
As a rule, liable entities can carry forward a shortfall of less than 10% of their liability to the following assessment year without facing a shortfall charge. If the shortfall is more than 10%, a charge of AUD 65 per LGC not surrendered is paid, but the funds can be redeemed within three years when enough LGCs are surrendered to acquit the shortfall. This is causing the shift of certificate demand to future years, affecting prices on the LGC market.
In October 2018, CER said that as the RET would for sure be exceeded, the regulator had no objections to the use of shortfall provided liable entities surrendered sufficient certificates in a subsequent year. As of the surrender deadline of February 14, 2019 the total deferral of liability amounted to 7.5 million LGCs.
In last week’s update, CER also said LGC forward prices for 2020 and 2021 have dropped to AUD 23.60 and AUD 14.75, respectively.
(AUD 1 = USD 0.7/EUR 0.62)
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