How to benefit from recent price movements in the Large-scale Generation Certificate (LGC) market

There has been a noticeable decline in Large-scale Generation Certificate (LGC) futures since late 2024 with prices along the curve turning downward from near-term to longer-term certificates as the scheme approaches its proposed conclusion in 2030. 

For businesses with voluntary renewable energy targets, as well as those with mandatory renewable energy obligations, this change in future LGC prices could make meeting targets more cost-effective than in recent years. 

Keep reading to learn more about what price movements in the LGC market may mean for your business and how Shell Energy’s innovative tools RECO and STEP Online can help you take advantage of this opportunity. 

LGC Market Dynamics and Price Trends in Australia

Since late 2024, the LGC market has seen a consistent downward trend along the entire curve. 

For large businesses, this trend presents both opportunities and challenges as market dynamics continue to evolve. But before diving into what this shift in the LGC market may mean for your business, what are some of the factors driving these price movements? 

Key Drivers of Price Movements

Surplus LGC Creation Driving Oversupply

The sharp increase in LGC creation in recent years, driven by sustained investment in renewable energy technologies, has led to a surplus of LGCs in the market. As a result, supply has consistently outpaced demand – the main driver of softening prices in the LGC market. 

To understand how a surplus occurs, it’s important to first consider how LGCs are used by different market participants. Each year, liable entities—typically electricity retailers—are required to surrender a specified number of LGCs to demonstrate compliance with their obligations under the (large-scale) renewable energy target scheme. In addition to mandatory surrenders, businesses may also choose to purchase and voluntarily surrender additional LGCs. 

Environmental certificates are bought, sold and traded via an online registry. When more LGCs are created in the market than are needed for surrender, the excess remains in the registry. Surplus certificates can be carried forward for future use or traded with retailers, generators and other participants in the secondary market. 

To better understand how Large-scale Generation Certificates fit into Australia’s energy transition, read more on our dedicated LGC insights page. 

The End of the Renewable Energy Target (RET) and Introduction of the REGO Scheme

The mandatory Renewable Energy Target (or MRET) is due to be replaced by the voluntary Renewable Energy Guarantee of Origin (or REGO) scheme in 2030. 

The market is already pricing in the future impact of the REGO scheme, particularly the expectation that REGO certificates may be cheaper, more flexible and include additional generation sources. The details of the REGO scheme have yet to be confirmed by the CER, so these expectations remain speculative. However, the anticipated arrival of the REGO scheme is having a clear impact on contract dynamics, which is in turn contributing to the softening prices of LGCs, particularly later dated certificate vintages. 

Voluntary Surrender of Large-scale Generation Certificates

The third factor influencing the changing dynamics in the LGC market is strong voluntary demand. The increase in demand is partly the result of voluntary renewable energy commitments by companies as they seek to purchase LGCs to support their renewable energy targets. 

While an increase in demand often puts upward pressure on LGC prices, the abundance of certificates has kept prices subdued. 

What does this mean for your business?

The falling price of LGCs is an opportunity to consider reviewing your business’ renewable energy commitments and sustainability goals. 

Shell Energy offers two ways your business can take advantage of pricing movements.

Renewable Energy Contracting Options (RECO)

While you generally cannot physically buy electricity directly from renewable sources, through our industry-leading secure platform RECO, Shell Energy will buy LGCs from accredited renewable generators and surrender them on your behalf. 

RECO, available to Shell Energy’s large customers, enables customers to meet their voluntary renewable energy goals simply and flexibly online in a matter of minutes by either:

• Agreeing to a LGC price and percentage upfront; or,

• Purchasing LGCs progressively over the contract term

With RECO, your business can meet its renewable energy goals by either agreeing to a RECO price and percentage upfront or setting these progressively over the term of your contract online. 

RECO is a simple, online way to take advantage of market movements in LGC prices to help achieve your sustainability goals. 

Strategically Timed Energy Procurement (STEP) Online

STEP Online is an alternative to fixed price electricity contracting that allows your business to progressively set your energy prices over the term of your contract. STEP Online also lets you lock in certificate prices for mandatory purchases progressively over your contract period, in parcels as small as 5%, instead of agreeing 100% of pricing upfront. This helps manage the risk of locking in your price on one day and to manage your exposure to market volatility.