What is the real size of Australian corporate demand for Renewable Energy?
MARCH 2025
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The collapse in renewable energy certificate prices – what’s behind it?
Over September to November last year the spot price of renewable energy certificates (known by the acronym LGCs) in Australia plunged by 43%. It mounted a half-hearted recovery in subsequent months but then collapsed again after the mid-February Renewable Energy Target compliance point to fall below $25. This level of low prices has only been previously experienced at two points in time:
Back in 2014 when former Prime Minister Tony Abbott was threatening to rescind the Renewable Energy Target; and
In 2005-06 when John Howard had ruled out expanding the original RET from its feeble 9,500GWh target and was instead claiming clean coal technology breakthroughs would solve climate change issues at minimal extra cost.
Importantly the fall that has been seen in the spot price of certificates has extended into forward year vintages, with 2027 year certificates changing hands recently for around $15.00
This fall in prices has brought into focus the issue of how robust corporate voluntary demand for renewable energy will be into the future.
Green Energy Markets’ analysis (detailed in our Renewable Energy Market and Investment Review subscription publication) indicates that in 2024 renewable generation eligible to create LGCs totalled 52m megawatt-hours (each LGC represents one megawatt-hour of eligible generation). Furthermore, this supply will expand considerably over the coming years as there is almost 10,000 megawatts of renewable energy projects under construction or going through commissioning. These are likely to expand supply closer to 80m LGCs per annum. Note if projects underwritten by Capacity Investment Scheme or Power Purchase Agreements also progress to construction then supply will be even greater.
By contrast the Renewable Energy Act only mandates that sellers of electricity purchase 33m LGCs per annum. The gap between 2024 supply and mandated demand is equal to 19m megawatt-hours. To put that into perspective that exceeds total demand for power from centralised generators in Western Australia’s main electricity grid- the South West Interconnected System. By around 2028 the gap will expand to more than 47m megawatt-hours, or greater than Victoria’s entire electricity demand.
Thankfully voluntary demand for renewable energy has expanded considerably over the last few years. In 2019 it was just 736,000 MWh. By 2024 it has grown to almost 10.5m MWh of certificates. However, that still remains a very long way short of what’s needed to soak up supply.
Falling LGC prices and the challenge of quantifying voluntary demand for renewable energy
Since Green Energy Markets was founded in 2008, our core business has been tracking supply and demand for renewable energy. We’ve always tracked voluntary demand but after 2012, when the first boom of corporate interest in carbon neutrality dropped away, it had been steadily declining and by 2018 had fallen to an almost immaterial 688,000 MWh. But in 2020 it became apparent to us that voluntary demand was about to experience a dramatic revival and so we invested considerable effort trawling through sustainability reports, RE100 pledges, the National Greenhouse and Energy Reporting System (NGERS) and a range of other sources to build up a database of corporate and government renewable energy procurement commitments. In addition, we beefed up our subscribers’ monthly LGC Account Holdings Tracking System to provide a comprehensive picture of which organisations were voluntarily surrendering LGCs so that we, and our clients, could see whether organisations were honouring their renewable energy commitments. In effect it’s a list of who’s been naughty and nice in the world of scope 2 carbon emissions.
This detailed work suggested to us several years ago that the market was likely to shift from one of tight supply conditions characteristic of a seller’s market to one of plentiful supply where buyers held the upper hand. That’s because while voluntary demand has been growing, it wasn’t growing fast enough to keep up with supply. Those concerns grew as it became apparent that corporates which had made significant renewable energy pledges were either not voluntarily surrendering any LGCs at all or were surrendering amounts far short of their pledges. Although this is still clouded in a lack of adequate transparency because many corporate and government organisations choose to honour their commitments via their electricity retailer voluntarily surrendering LGCs on behalf of their client. In addition, many of the pledges were set for achieving targets in 2025 or 2030, with little to no detail on what they might do in the interim period prior to 2025 or 2030. The Clean Energy Regulator’s Corporate Emissions Reduction Transparency Report is helpful here, but the problem is the number of companies which participate is appallingly small (and the program is no longer operational). Sustainability reports can also help but often are little more than a glossy public relations brochure. The RE 100 program meanwhile needs to seriously lift its reporting transparency game and consider kicking some companies out (I’m looking at you Google-Alphabet) who fail to support their renewable energy claims with evidence (disclosure as RE100 calls it). We sincerely hope that mandatory climate reporting will lead to a dramatic improvement in transparency. But really it should be mandatory for all large companies that make carbon emission reduction claims to report via NGERS both their scope 1 and scope 2 emissions and the amount of renewable energy certificate surrender they have undertaken during the year. This would provide stakeholders with a single, trustworthy source to check who is fair dinkum about their climate commitments.
A further reason behind our bearish view on the outlook for LGCs was the Federal Government’s decision in 2023 to award Clean Energy Regulator-certified renewable energy certificates to decades-old hydro power plants for all of their generation (known as REGOs not LGCs). These old plants have always been eligible to create LGCs but only if they managed to expand electricity output beyond historical averages. The thinking being that these old, government-owned plants should only be rewarded for output that went beyond business as usual and therefore actually helped reduce emissions beyond what was already locked in. Federal Government agencies, in justifying this decision, claimed that voluntary demand for certificates was set to dramatically expand and so an extra 12m renewable energy certificates per annum would make little difference. This seems hard to reconcile with the fact that voluntary demand last year was just 10.5 million and the Clean Energy Regulator is forecasting that 2025 voluntary surrender will be between 12.5m to 15m.
Distinguishing between the hype and reality of voluntary demand
We are actually a bit more optimistic than the Clean Energy Regulator about voluntary demand for 2025 given the renewable energy commitments in our database. But the prior Morrison Government’s claim Australia could reach net zero through every major corporate voluntarily opting to go 100% renewable for their electricity? Well, that was about as likely as every CEO at the next Business Council dinner spontaneously joining in a chorus of Kumbuya while calling for a ban on fossil fuels. While we expect some solid growth in voluntary demand this year compared to last year, further meaningful growth in subsequent years will likely depend on low LGC prices.
We know that some LGC market participants are genuinely surprised by this bearish view. So it is helpful to understand some of the nitty gritty detail sitting behind our analysis of voluntary demand, which is informed by research within our subscription products – the LGC Holdings Tracking System; the Renewable Energy Market and Investment Review and our LGC and Carbon Credit Price Drivers Report.
Firstly, let’s start off with a macro-picture of the history of LGC voluntary surrender broken down by industry sector in the chart below. We’ll then touch upon five of these industry sectors to help provide a window into why we hold concerns about the scale of further growth in voluntary demand.
We would caution readers that our observations below are subject to some data gaps. We would urge organisations with significant voluntary purchasing arrangements to get in touch with us to clarify their voluntary surrender plans so we can maintain accurate records within our Voluntary Renewable Energy Demand Database.
Power Retailing
Power retailing is a clear stand-out source of voluntary demand. This is where power companies voluntarily surrender LGCs on behalf of their customers. This creates a serious black hole for us, because we don’t know which companies they are surrendering on behalf of. Some companies and government agencies may be doing the right thing purchasing 100% renewable energy and honouring their commitments but we can’t see it in the REC-Registry data (and is why mandated use of NGERS for any major corporate making emission claims would be really helpful). Again, we would strongly urge organisations that are choosing to surrender via their electricity retailer to get in touch with us at Green Energy Markets to let us know if you have elected to surrender via your power retailer so we can ensure we maintain accurate records within our Voluntary Demand Database.
A cursory glance at the Power Retail section of bars would suggest voluntary demand is on a rapid growth trajectory. But it’s very important to recognise that most of that growth was concentrated in 2022. Since then growth has tailed off. When you dive into surrender of individual retailers you see some concerning signs of stagnation or even falls in voluntary surrender. For example, Snowy Hydro’s group of companies achieved a massive surge in customer voluntary purchase of LGCs to 1.2m in 2022, compared to 203,000 in 2021. But it has since almost halved to 629,000 in 2024. Origin Energy is the next biggest seller of LGCs to customers and it also achieved a big surge in 2022 to 625,000 LGCs compared to 157,000 in 2021. Voluntary sales then grew further in 2023 to 793,000 but they dropped in 2024 to 688,000. So the growth in voluntary demand in this sector is patchy and has dramatically slowed since 2022. We are hopeful that there will be another surge of growth in 2025 because this is a common benchmark year for many organisations achieving 100% renewables targets. But growth levels after 2022 just aren’t of a scale that is sufficient to keep up with supply growth.
Government
Government agencies are the next biggest source of voluntary demand and concerningly this sector’s surrender hasn’t grown since 2020. Although we suspect many councils have opted to meet their renewable energy commitments via their electricity retailers.
Water Suppliers
Water companies are a salutary tale for why market participants and analysts need to be sceptical about the swath of net zero emission commitments we’ve seen from corporates in recent years. Over the mid to late 2000’s, in the wake of the millennium drought, water companies were confronted with the implications of a changing climate for the security and reliability of our water supplies. This led almost all major metropolitan water authorities to make significant commitments to procure renewable energy, often to cover the increase in electricity consumption involved in new water supply infrastructure – particularly desalination plants. Those public commitments to procure renewable energy remain in place today. That’s partly why water companies were a larger source of voluntary surrender in 2021 than power retailers. However, the level of follow-through on commitments leaves a lot to be desired.
While the Sydney Desalination Plant has been diligent in meeting its commitments on a timely and consistent basis (although the amount of LGCs are small), the same cannot be said for others. SA Water has a commitment to net zero emissions and 100% renewable energy by 2030. Importantly this included an initiative involving the now largely complete roll out solar across its sites over the past few years that it claimed would generate 70% of its electricity needs. However, while SA Water Corporation did voluntarily surrender LGCs back in 2014, since then it has voluntarily surrendered precisely zero LGCs from its REC Registry account. It’s possible that they may be voluntarily surrendering via an electricity retailer, but it seems strange that it doesn’t come directly from their own, highly active registry account. Melbourne Water is in a similar boat. In terms of WA Water Corporation it claimed that its desalination plant, which commenced operation back in 2006, would be 100% renewably powered. Yet up until 2020 they didn’t voluntarily surrender a single LGCs, and then suddenly in 2021 they surrendered over a million. Then in 2022 they surrendered just under 4,000 LGCs and in 2023 surrendered none before surrendering 114,000 in 2024. This highly irregular pattern of surrender, that doesn’t appear to correlate with the power consumption of their desalination plants, raises questions about the rigour of their processes for complying with renewable energy commitments and how seriously they treat them.
Retail
The retail sector has also caused us some concern. Aldi Supermarkets certainly haven’t been the source of this concern and deserve a pat on the back. In 2020 they announced their intention to be 100% renewably powered and by 2022 they were surrendering the LGCs to deliver it. Woolworths also pledged in 2020 to be 100% renewably powered, aiming to get there by 2025 and then Coles followed with the same pledge in 2021. However, their follow-through on this pledge has caused us some nervousness because their pattern of voluntary surrender in the lead up to achieving 100% in 2025 has been rather random. In 2022, the year after Coles made its pledge to migrate to 100% renewable energy it surrendered just 3 LGCs – this is for a company that consumes close to 1.6m megawatt-hours. Woolworths meanwhile voluntarily surrendered no LGCs to cover what we estimate is around 2m megawatt-hours of electricity consumption. In 2023 Coles‘ voluntary surrender stepped up materially to just over 400,000 but then in 2024 rather than progressing closer to 100% it actually went down slightly. Woolworths surrender meanwhile has progressively lifted over 2023 and 2024 but at just under 150,000 LGCs in 2024 that’s just 7.5% of Woolworth’s electricity consumption and they’re meant to progress to 100% renewable this year. Such surrender behaviour doesn’t inspire confidence, although both companies have made unambiguous public statements that by 2025 their voluntary surrender will increase substantially to ensure they meet 100% renewables. We’ll be watching intently.
Data Centres and Telecoms
The prospect of rapid growth in data centre electricity demand has generated a great deal of excitement amongst the electricity industry and an array of other interest groups. However, their demand for renewable energy certificates, at least to date, has failed to inspire. Again we should highlight one bright note – Amazon have walked the talk. Just last month they surrendered almost 350,000 LGCs which is close to their entire electricity consumption. However, the other big tech firms Microsoft, Google/Alphabet, Meta/Facebook, and Apple have no record of voluntarily surrendering LGCs. All of these firms have held commitments to 100% renewable energy purchasing for a number of years. Unfortunately, this is a bit of an information black hole because none of these firms report their Australian emissions footprint via NGERs, so presumably their electricity emissions footprint has been largely outsourced to 3rd party data centres in Australia. In addition, it’s always possible that some of them are electing to surrender LGCs via an electricity retailer or an offset broker. Concerningly though, the 2023 RE100 Annual Disclosure Report reveals that neither Alphabet or Microsoft provide adequate information to allow the RE100 program to properly verify their 100% renewables claims at a national level. We are nonetheless reasonably confident that Microsoft will ultimately deliver on its renewable energy promises in light of deals with AGL and FRV. However Apple’s decision to pull out of its power purchase agreement for the Upper Burdekin Wind Farm leaves some doubt about their plans. Meanwhile Meta is yet to announce any Australian power purchase agreements and Alphabet’s only announcement is tiny in scale relative to what we’ve seen from Amazon, Microsoft and Apple.
If we extend our gaze to look at surrender of the dedicated data centre and telecommunication companies, it is also tiny. Back in 2020 Telstra announced they would be carbon neutral and “enable renewable energy generation equivalent to 100 per cent of our consumption by 2025”. But there was devil in the detail of that announcement. Due credit to Telstra is that they most certainly did help enable several renewable energy projects to get built by backing them with long-term power purchase agreements. Without the revenue certainty of a contract with Telstra these projects may well have never got built. However, our understanding is that Telstra on-sells the renewable energy certificates to others rather than surrendering them to cover their own electricity purchases and Telstra has not surrendered a single renewable energy certificate post 2020. NBN Co last year surrendered just 10,000 LGCs but we expect this to leap up this year given the procurement deals it has entered into. In terms of the major dedicated data centre operators we can only see CDC and Fujitsu having voluntarily surrendered LGCs.
Conclusion
The supply of renewable energy certificates covering both LGCs and below-baseline REGOs are set to expand far beyond the demand legislated under the Federal Parliament’s Renewable Energy Act.
There has been significant optimism amongst some market observers that the swath of net zero and renewable energy procurement commitments we’ve seen from major corporations and other organisations over the past five years would ensure robust demand for these certificates. The hope being that this would mean these certificates would deliver renewable energy projects a meaningful, ongoing price premium for their electricity that could support further ongoing investment in new renewable energy projects.
Up until October last year, market pricing for LGCs helped support such optimism. However, given Green Energy Markets’ long running experience in this market, we knew that often follow-through doesn’t match the original enthusiasm and excitement of emission reduction announcements. One must always apply a critical, quantitative and attentive eye over emission reduction promises whether they come from politicians or corporations. While we hope and expect demand for renewable energy will continue to expand, there are serious questions over whether the premium organisations will be prepared to pay will be sufficient to support ongoing new project investment. The Federal Government’s Capacity Investment Scheme should mean this doesn’t hinder new investment over the next few years, but this scheme is also subject to doubt given the forthcoming federal election.
Companies such as major energy businesses and government agencies that have a lot at stake from emission reduction promises rely on Green Energy Markets to provide a critical, quantitative eye over emission reduction promises and policies. Green Energy Markets provides analysis and advice that assists our clients make better informed investment, trading and policy decisions in energy and carbon abatement markets. If you have a lot at stake in this area and are interested in how we might be able to help, please don’t hesitate to get in touch via insights@greenmarkets.com.au or phone 03 9805 0777.
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