Are you boosting revenue from your site’s large-scale solar?

Commercial solar system image from Canva to illustrate Wattwatchers blog post on LGCs

When Australia reached its ‘20% by 2020’ renewable energy target nearly four years ago, the prevailing market expectation was that large-scale generation certificates (LGCs) for renewables would decline rapidly in value. Instead, LGC prices have surprised on the upside, and Wattwatchers is seeing growing interest in monitoring commercial and industrial (C&I) built environment solar systems for LGC creation.

CARBON AND ENERGY

It’s further proof, if needed, that markets can work in strange and unexpected ways.

Historically, renewable energy certificates (RECs) have been a key instrument in Australia successfully reaching its ‘20% by 2020’ renewable energy target (‘the RET’).

They’re still at work for the clean energy transition, through to 2030, and come in two shapes: 

  • Small-scale technology certificates (STCs) for household and other small solar systems up to 100kW, and
  •  LGCs for >100kW systems.

Our focus here is on LGCs, each one of which represents the generation of one megawatt hour (1MWh) of renewable electricity.

LGCs have financial value, can be traded (bought and sold), and also can be surrendered voluntarily as a high-quality, government-validated form of ‘renewable credit’.

Voluntary buyers prop up market

It’s this voluntary surrender aspect of the LGC market that is proving particularly interesting, helping keep certificate prices higher than most expected as the RET heads towards its closure in 2030 (while the 20% target was reached by 2020, the scheme continues to operate until 2030).

This unexpected market trend for LGCs was explored by leading energy transition online publisher Renew Economy nearly two years ago, which reported:

It wasn’t that long ago that some leading energy analysts were predicting that the price of large scale generation certificates (LGCs) would fall to zero, or close to it, by around this time. But it didn’t, and now it’s not even close.

The price of LGCs – the key currency for the federal renewable energy target – has been trading around $48/MWh, despite the fact that the RET – having survived a federal Coalition attempt to kill it off – has been well and truly met.

After touching around $58 (AUD) in mid 2023, the LGC price has eased into 2024, but still remains persistently much higher than market forecasters expected, with spot market prices around the $45 to $46 mark – as is shown in the chart from Core Markets below.

What’s driving demand now?

Recently, Wattwatchers noted a surge in customers buying our smart energy monitoring devices for the purpose of LGC creation.

So where is the heightened demand for LGC monitoring coming from? One part of the answer is the sheer buoyancy of the solar sector, especially in the C&I built environment, at a time of high power prices and falling PV panel costs.

Leading solar industry distributor Supply Partners, which stocks Wattwatchers solutions for LGC creation and other use cases, confirms that it is seeing an increase in LGC jobs.

Supply Partners’ technical business development manager Andrew Thomson cites a number of reasons: 

1. A significant increase in electricity prices in 2023 has seen return on investment for solar significantly increase, especially for large volume customers who have been on low electricity rates and have avoided solar until now. 

2. The cost of solar panels has reduced significantly. For example the best selling commercial solar panel in our lineup has reduced in price 44% between January 2023 and January 2024. 

3. The combination of points 1 and 2 has meant that customers are finding value in designing systems to offset as much grid consumption as possible, rather than sticking to a 100kW STC system

4. Design/proposal software has improved significantly and it is now far easier for solar retailers to include LGC modelling in their proposals based off actual market forecasts

‘Wattwatchers’ hardware is the LGC meter of choice* due to proven reliability, simplicity of installation and cost,’ said Thomson.

*Based on advice from the Clean Energy Regulator (CER), Wattwatchers’ standard devices (Class 1 accurate to plus or minus 1 percent) can be used to validate LGC creation for sites with up to 750MWh of renewable generation per annum. Above 750MWh, customers using Wattwatchers are required to deploy our off-market billing-grade solution ‘bundle’, which includes an additional meter that is pattern-approved for trade in electricity ($/kWh) by the National Measurement Institute (NMI).

Combination of factors

As best we can tell, the rising interest in LGC is a consequence of the great economics and innovation in the solar industry in Australia, combined with voluntary surrender helping to keep LGC prices higher than expected (and therefore worth chasing to maximise returns from bigger solar installations).

When it comes to the market for LGCs, its corporate buyers – including multi-nationals sourcing bona fide Australian offsets for their renewable energy targets electricity-related (Scope 2) carbon emissions – that are helping to keep LGC prices alive and kicking.

In 2020 there was a first spike in LGC voluntary surrenders, hitting 4 million for the year. In 2021 it climbed to 5,8 million, then 7.4 million in 2022, and is on track for a projected 9.5 million in 2023 (final numbers for last year have not yet been published by the CER).

So, as well as an ongoing trend towards bigger solar systems, with better tools for modelling LGC revenue, C&I building owners with large-scale solar installations may have previously disregarded LGC creation, expecting – or being advised – that LGC prices would fall off a cliff after 2020.

But now that this hasn’t happened, and spot market prices are both unexpectedly high and quite stable, LGCs are being taken seriously as part of the ‘value stack’ for solar investments.

It follows that to create LGCs, at least some C&I sites are retrofitting the required monitoring/metering to eligible established systems, while a growing number of others are upsizing systems and making sure to equip new installations for LGC creation.