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VEEC Market Update: Managing Certificate Price Fluctuations

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VEECVictorian Energy Efficiency Certificate prices have risen dramatically since 2020, when certificates were priced at $30, at that time lighting was still the bulk of the upgrades, and the government set increasing targets (6.5M growing to 7.3M by 2025) along with a declining emissions factor.  This mean more MWh of electricity savings are now represented by one VEEC. Increased demand and reduce supply led to price inflation over the past five years.  In response, and as part of the strategic review, the government to announce plans for an overhaul of the VEUVictorian Energy Upgrades is a Victorian government energy efficiency program that gives every Victorian household and business the opportunity to receive rebates or discounts on energy saving products. program, with the aim of easing cost pressures and ensuring the program is sustainable into the future.

Proposed changes include extending the program’s timeline to 2045 and relaxing the time limits for certificate validation which could release more certificates into the market and help bring prices down. There has been an ongoing discussion regarding how the VEEC price will be affected in the coming months, while there is still room for increases in price, there is growing downside risk on prices that could see the wholesale VEEC price fall back from current highs, potentially suddenly.

Managing Your Risk

The VEU is a market-based incentive program and as such there can be volatility in the market. The graph showcases how the VEEC prices can suddenly drop following any government announcements.

Looking at 3 different market-based incentive programs – Victorian Energy Upgrades Program (VEECs), NSW Energy SavingsElectricity or gas savings or both. Scheme (ESCs), and the Small-Scale Renewable Energy Target (STCsSmall-scale Technology Certificate under the Australian Renewable Energy Target. More), you can see that the government policy and market conditions have led to 3 very different outcomes in certificate pricing over the past 6 years

What Steps can you Take?

  1. Complete the paperwork and submit your jobs for processing as soon after installation as possible and respond to pending RFI’s quickly to reduce the time job claims are outstanding.
  2. Check our spot price newsletter issued every Monday and Wednesday so you are aware of any market changes – if you are not receiving this, please let us know.
  3. Regularly review the incentive amounts that you are offering to your customers and keep a buffer for yourself, so you are not caught short.
  4. Talk to us about hedging or forward contracting if this is the right option for you. This allows you to lock in the price for a set amount of VEECs to be delivered in an agreed period of time.
  5. Consider other activities for additional submissions to diversify your product and service offerings to customers.

Key Factors That Influence Certificate Prices

The Environmental Certificate Program operates on a market-based model, requiring electricity retailers to purchase millions of certificates annually. By removing the strict timeline for certificate validation, the government hopes to increase the supply of certificates, which could relieve some of the price pressures. However, this will only have a margin impact on VEEC price through changing the timing, not the overall quantity of certificates available.

Supply and Demand: the demand for certificates by retailers is set by the annual government targets. The targets are set in 5-year blocks, with the current targets set to the end of 2025. The government has announced that they will set an interim target for 2026 and 2027, while the VEU Strategic review is undertaken. The 2026 and 2027 targets need to be announced by May 2025, however, could be announced earlier. While the target was growing each year in the 2020 to 2025 period, there is a possibility that the government could set a lower target for 2026-2027 which would put downward pressure on pricing by reducing the demand. Supply of certificates is also determined by the government by setting the allowable activities and setting the number of VEECs each activity will produce. Bringing new activities to the program could increase the supply of certificates and reduce the price.

Stronger Regulatory Oversight: Planned reforms also include giving the Essential Services Commission greater authority to regulate appliance installers. While this increased oversight is aimed at ensuring compliance and preventing fraud, it may also slow down the generation of new certificates if installers face additional regulatory hurdles​.

Political and Economic Pressures: The debate surrounding the VEU program is highly polarized. Critics argue that the scheme is unfairly driving up costs for low-income households at a time of economic difficulty, while supporters maintain that it has successfully reduced power bills, distribution infrastructure costs, and the upfront cost for many energy-efficiency upgrades. How the government balances these competing concerns will significantly affect the future pricing of VEECs​.

What Can We Expect Moving Forward?

While the current wholesale price of VEECs remains high at $105-$114 per certificate, the upcoming reforms are expected to create more activities into the future and potentially lower prices over time. The increase in certificate supply, combined with improved regulatory oversight, could provide some relief to both consumers and electricity retailers. However, it remains uncertain how significant these price reductions will be and how long they will take to materialize.

With the VEU program now extended to 2045, businesses and consumers can plan for long-term participation in a more refined and efficient system. The key will be to monitor the ongoing review and regulatory changes closely, as these will ultimately shape the Future landscape of Energy efficiency in Victoria.

In conclusion, while VEEC prices are currently high, upcoming reforms have the potential to bring them down gradually (or suddenly). Stakeholders should prepare for a period of transition and keep a close eye on legislative developments as the Victorian government seeks to leverage this critical emissions reduction program as part of the government electrification strategy.

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What was the price of a VEEC in 2020, and how does it compare to current wholesale prices?

In 2020, Victorian Energy Efficiency Certificates (VEECs) were priced at $30. As of the article (December 2024), the current wholesale price of VEECs remains high at $105-$114 per certificate.

What factors caused VEEC prices to rise dramatically since 2020?

According to the article, VEEC prices rose due to the government setting increasing targets (6.5M growing to 7.3M by 2025) along with a declining emissions factor, meaning more MWh of electricity savings are now represented by one VEEC. Increased demand and reduced supply led to price inflation over the past five years.

What reforms has the Victorian government proposed for the VEU program to ease cost pressures?

As part of a strategic review, the government announced plans for an overhaul of the Victorian Energy Upgrades (VEU) program aimed at easing cost pressures and ensuring sustainability. Proposed changes include extending the program's timeline to 2045 and relaxing time limits for certificate validation, which could release more certificates into the market and help bring prices down.

What five steps does the article recommend businesses take to manage VEEC price risk?

The article recommends: 1) Complete paperwork and submit jobs for processing as soon as possible after installation, and respond quickly to RFIs; 2) Check the spot price newsletter issued every Monday and Wednesday for market changes; 3) Regularly review incentive amounts offered to customers and keep a buffer; 4) Talk to Northmore Gordon about hedging or forward contracting to lock in prices for a set amount of VEECs over an agreed period; 5) Consider other activities for additional submissions to diversify product and service offerings.

How are VEEC supply and demand determined under the VEU program?

Demand for certificates by retailers is set by annual government targets, which are set in 5-year blocks (current targets run to the end of 2025). The government has announced it will set interim targets for 2026 and 2027 while the VEU Strategic Review is undertaken, needing to be announced by May 2025 (though possibly earlier). Supply of certificates is determined by the government setting allowable activities and the number of VEECs each activity produces; bringing new activities into the program could increase supply and reduce price.

What regulatory reforms are planned that could affect VEEC generation?

Planned reforms include giving the Essential Services Commission greater authority to regulate appliance installers. While aimed at ensuring compliance and preventing fraud, this increased oversight may also slow down the generation of new certificates if installers face additional regulatory hurdles.

What are the differing political viewpoints on the VEU program mentioned in the article?

The debate is highly polarized: critics argue the scheme unfairly drives up costs for low-income households during economic difficulty, while supporters maintain it has successfully reduced power bills, distribution infrastructure costs, and the upfront cost of many energy-efficiency upgrades.

Which three certificate markets does the article compare to illustrate different price outcomes?

The article compares three market-based incentive programs: the Victorian Energy Upgrades Program (VEECs), the NSW Energy Savings Scheme (ESCs), and the Small-Scale Renewable Energy Target (STCs), noting that government policy and market conditions have led to three very different outcomes in certificate pricing over the past six years.

Until what year has the VEU program now been extended, according to the article?

The VEU program has now been extended to 2045, allowing businesses and consumers to plan for long-term participation in a more refined and efficient system.

Who wrote the VEEC Market Update article and when was it published?

The article was published by Northmore Gordon on December 4, 2024, under the News category on the Northmore Gordon website.

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