LGC Market: what's driving the uplift in prices?

What we’re seeing is driven by the sentiment surrounding the build out of data centres and anticipated demand for LGCs.

Source: SmartestEnergy Australia

However, even if the data centre-driven surge in demand eventuates, SmartestEnergy foresees notable excess supply of LGCs in the market, especially following the conclusion of the Large-scale Renewable Energy Target in 2030.

That said, there may be some tightening vs the current level of projected surplus.

While the curve continued to be quite elevated following the large price spike, it ended the quarter at around $5 (although noting demand has since pushed the price to ~$8-9 in Q3).

On the supply side, although there is a substantial pipeline of renewable and storage projects, near term final investment decision or ‘FID’ sentiment appears to have dropped due to the ongoing challenges for developers in securing PPAs and virtual tolls. The key issues appear to be electricity prices and intraday arbitrage value falling for buyers, at a time of increasing development costs and an inflationary environment for sellers.

The outlook

Drivers to watch into the future include the actual vs projected build out of data centres, Federal and State government requirements placed on hyperscalers/data centres, increasing emissions reporting for large local corporates and international corporates focusing on reducing their APAC emissions.

Both in the lead up and following the conclusion of the LRET, these drivers may result in greater voluntary interest, as well as quasi compliance interest (proposed datacentre requirements).

In addition, SmartestEnergy continues to field many questions about the new Renewable Electricity Guarantee of Origin voluntary certificates (REGOs) and their round-the-clock/time of day structures - although we are still in very early stages of that scheme.

For further insights into the changes underway in the Australian certificate market and key considerations to support the development of your procurement strategy, reach out to the trading team via our website. You can also read SmartestEnergy’s Guide to LGCs and the transition to REGOs.

Explore our guide to LGCs and the transition to REGOs

In our Guide to LGCs and the Transition to REGOs, we have summarised our insights from our earlier 3 part blog series and talked through how SmartestEnergy can support your green certificate procurement goals.

View the Guide here.

Disclaimer: The information enclosed is general information only; it cannot be relied upon as legal or financial advice. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person or entity.