Australian environmental services provider Ecovantage registered the first renewable electricity facility under Australia's guarantee of origin scheme, and plans to soon start exploring a new market for the upcoming renewable guarantees of origin (Regos).
Chief executive Aaron Jenkins spoke with Argus about expectations for the new product and how historically low large-scale generation certificate (LGC) prices have been impacting the market. Edited highlights follow:
Ecovantage registered the first facility that will be able to generate Regos, a small 0.17MW solar installation in New South Wales state. Why did you decide to register early into this voluntary scheme when the Large-scale Renewable Energy Target (LRET) scheme will last until the end of 2030?
Certificates in environmental commodities are the core business of Ecovantage. We've already had a lot of interest from ESG-type consumers on time-stamped renewable energy certificates, and Regos fit that brief. We've had interest for years from multinationals who operate under various frameworks outside Australia, where time stamping is a valuable option.
With the LGC market being in a very bad way and with participation in the LRET falling, we thought it was a good opportunity to explore what alternatives are there. LGC prices being so low is causing quite a lot of headwind for the commercial solar industry in particular. Business cases are not being approved. Solar deployment is slowing.
What are your expectations for these intervening years, where LGCs and Regos will coexist together, and for further ahead?
Regos are likely to have a higher value than LGCs depending on the time of the day that they're generated. If they are worth more, we think there could be more engagement from businesses who have generating assets but who don't want to create an LGC for a negligible amount, or from companies looking to make a business case for deploying new rooftop solar assets.
At the moment, the Clean Energy Regulator (CER) is letting us register the same power station for the LRET and the Rego programme. We can't create Regos and LGCs against the same MWh, but we can have assets register on both frameworks and pick and choose which one they participate in on a quarter-by-quarter basis. There will be a lot of other entities testing this as well.
How do you see the transition from the LRET, a compliance market, to the fully voluntary Rego scheme?
It is probably 10 years too early to go forward as a voluntary programme. We've been very vocal in saying it should be a compliance mechanism until the country reaches its 82pc renewables goals.
The opportunity we see with Regos is for generation assets which are being underappreciated under the LRET to reap greater financial benefit, by being more transparent and providing more granular certificates to the market. How much of an increased benefit that is, we have to wait and see.
How do you think the granularity will work out?
LGCs work with annual vintages, while with Regos we're going down to hourly timestamps. But it's left up to industry as to how we stratify them.
We see such demand to a small part already with LGCs, for entities that want to purchase certificates generated in a certain month, in a certain region, from a certain type of renewable technology. However, it relies heavily on the certificate creator as to how they put the data into the registry, how detailed they go in tagging it. I think the stratification is going to be much bigger with Regos because of its complexity.
One of the things that will be interesting to see is how ESG frameworks recognise the ability to have this granularity, because the voluntary markets are very closely tied to these frameworks.
If Climate Active or some of those other major programs don't require time stamping and granularity, then one could make the argument of why would you ever bother buying a nighttime Rego? Even if you're a data centre that runs 24 hours a day, why wouldn't you just buy twice the amount of daytime Regos when they're cheap? I think how ESG frameworks are written are going to have a real direct market impact on what we see Regos selling for.
The main ESG frameworks in Australia currently recognise LGCs and not Regos, but voluntary demand for LGCs has been increasing, correct?
A lot of the LGC demand at the moment is only there because the LGC price is so low. We work with a lot of organisations which have chosen not to deploy their own renewable assets at this point in history because LGCs are so cheap. They'd rather just buy cheap LGCs than take real action.
LGC spot prices in the secondary market were declining steadily but have been hovering around the A$3/MWh mark in recent weeks. Is that mostly because of resistance from some sellers to go below that level due to costs?
There's a cost to create. By the time you create the LGCs, pay metering subscriptions to get the data, pay the CER to register them, pay a broker to find a buyer or a seller, and then spend time validating them, it's not worth going below A$3/MWh.
Can you please elaborate on those costs? Some market participants mention an issuance fee of A$0.08/MWh as the main cost.
You're paying a monthly or an annual metering subscription on every data connection you've got. You're paying someone to sit there and create the LGCs because there's no automated API into the registry, so a human has to do it.
You're then paying a broker to find a buyer and a seller and line them up. And on the other end, a company has to pay someone to handle or surrender the LGCs — in our case, we'll surrender them on behalf of the organisations that engage us in that voluntary market. That also takes time.
The LGC market as it remains is non-viable. There needs to be a policy update there.
If there was a relevant policy update, do you think we could see LGC prices moving up again?
If the government wants a rapid mobilisation of commercial and industrial renewables, especially behind-the-meter facilities, they need to get certificate prices above A$20/MWh. Get the price above that, and you will see a flood of new renewables being deployed.
