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2.1 Large-scale generation certificates (LGCs)

Key figures

  • Generation eligible for LGCs reached 44,000 GWh in 2022, up from 39,000 GWh in 2021.
  • LGC spot prices settled about $65 for most of Q4.
    • The spot price began to decline from late December 2022 to $49.85 by 31 January 2023 and fell further in February.
  • Non-RET LGC demand reached a record of 7.4 million certificates cancelled to prove use of renewable energy.
    • This increased total demand for LGCs by 23% above the legislated RET of 33,000 GWh.
  • The market still has an effective deficit of 15.5 million LGCs to redeem all shortfall, both paid and carried forward.
  • 2.5 GW of new wind and solar capacity was approved for LGC creation in 2022.

Approved capacity remains stable

Capacity approved for LGC creation in 2022 was 2.5 GW, and another 640 MW remained under application at the end of December 2022. The 2.5 GW approved capacity could generate up to 6 million MWh and LGCs per year once it reaches full generation. This is equivalent to 2.9% of 2022 NEM electricity demand, noting that not all approved capacity is connected to the NEM.

Solar was the dominant source for approved capacity for the second consecutive year (see Figure 2.4). This was helped along by the 522 MW New England solar farm, the largest solar farm registered in Australia. However, this trend will change in future with wind accounting for 58% of the current total committed capacity of 6.8 GW that is either under construction or will be soon. Solar typically has a shorter build time compared to wind for the same capacity and can often start generating quicker once projects have reached FID.

Figure 2.4 highlights the lower level of capacity approved in 2021 and 2022 following the larger levels approved during 2018 to 2020. This reflects the build of renewable energy projects that reached FID between late 2016 and 2018, and the pull back in FID in 2019 to 2.3 GW (see Figure 2.1). Depending on the size of the power station, projects can take multiple years from start of construction to reach registration (first generation) – typically 1 to 2 years for solar and more than 2 years for wind.

FID capacity in 2020 and 2021 averaged 3 GW per year and increased to 4.3 GW in 2022. Despite this, it is estimated that capacity approved in 2023 will be similar to 2022 at about 2.5 GW. Multiple factors are contributing to longer timeframes between increasing FID and seeing that increase flow through to generation/approval including:

  • projects getting much larger on average, indicating longer build time. For example, the 1 GW MacIntyre Wind farm reached FID in Q4 2021 but is not expected to commence generating till late 2023 or early 2024.
  • the big increase in FID in 2022, most of which was in Q4, suggests the impact on approved capacity may not be realised until 2024.

Capacity approved in 2023 could exceed 2.5 GW if some projects that reached FID in 2022 come through for registration this year. At this stage, approved capacity is most likely to show growth again between 2024 and 2026.

LGC supply and demand dynamics

Following the annual surrender of LGCs for RET liability for the 2022 assessment year on 14 February 2023, there was still almost $1 billion in consolidated revenue that can be redeemed under the 3-year rule. This represents about 15 million LGCs are needed. In addition, there was about 500,000 of LGC liability carried forward by electricity retailers under the 10% borrowing rule. Considering the need for liquidity for the market to operate, there is still an effective deficit of about 15.5 million LGCs. Despite LGC supply increasing materially year on year for the last 3 years, this effective deficit has stayed about the same as voluntary cancellations increase rapidly and shortfall continues to be taken and redeemed.

11.2 million LGCs were validated in Q4 2022, taking total 2022 calendar year supply to 42.1 million – an 8% increase on 20211 . Including holdings of 7.8 million LGCs from previous years, 49.9 million LGCs were theoretically available in 2022 for cancellation against statutory and voluntary demand and to redeem shortfall. However, markets need liquidity to function and the 7.8 million could be seen as representing the liquidity needed in the 2021 assessment year.

By the surrender deadline of 14 February 2023, 28.5 million LGCs were cancelled against liability for the 2022 assessment year resulting in a surrender rate of 86%. 5.1 million LGCs were taken as shortfall, higher than the 4.9 million LGCs for 2021. Of the 5.1 million LGCs taken as shortfall for 2022, 4.6 million LGCs related to paid shortfall and 0.5 million was carry forward shortfall. The balance for the 2022 assessment year after surrender was 8.8 million LGCs (see Table 2.1). This balance does not consider LGCs that have been validated in 2023.

Detailed results for the 2022 assessment year will be provided through the CER’s Certificate shortfall register.

Table 2.1: LG balance at the end of the 2022 assessment year

LGCs available from previous assessment years+7.8 million-
2022 LGC supply (available for 2022 surrender)+42.1 million
LGCs surrendered 2022 assessment year -
-28.5 million
Shortfall charge refunds-
-5.2 million
Voluntary cancellations
-7.4 million
Estimated total balance for 2022 assessment year +8.8 million

The dynamics of the shortfall mechanism suggests electricity retailers and the market generally are continuing to use the shortfall provisions as an effective liquidity mechanism. While the shortfall mechanism remains in material use, the 8.8 million LGC balance could be seen as the liquidity the market needs. This is approximately 1 million more than at the end of the 2021 assessment year.

Supply and demand for LGCs will continue to remain tight for the foreseeable future. New LGC supply in 2023 is expected to be in the range of 45 to 48 million LGCs2. At the end of the 2022 assessment year, 15 million LGCs, equal to approximately $1 billion of shortfall charge, remained eligible for refund. Including the 0.5 million carry forward shortfall. This creates an effective deficit of 15.5 million LGCs in the market and voluntary demand to cancel LGCs is expected to continue to grow.

There is significant unrealised demand for LGCs when considering the potential demand from National Greenhouse and Energy Report (NGER) reporters. Many reporters have emissions reduction and renewable energy use commitments and will likely use LGCs as a vehicle to demonstrate some or all of this. The underlying electricity used by above threshold NGER reporters in their recently published scope 2 electricity emissions was 111 million MWh in 2021-22, equivalent to 111 million LGCs. Even when adjusted for RET liability, around half of the 33 million LGCs, and the current breakdown of voluntary demand cancellations discussed below, there is potential annual demand of around 90 million LGCs from NGER reporters above the publication threshold.

Additionally, the Australian Government commitment to mandate and standardise disclosure of climate‑related financial risks and opportunities will likely see voluntary LGC cancellation continue to increase. It is difficult to predict when the effective LGC deficit of 15.5 million will decline. It will be interesting to see whether this effective deficit changes during 2023.

While this deficit remains, the shortfall mechanism component of LRET liability and the associated price dynamics around the $65 LGC shortfall charge remain a consideration for liable entities. This effective deficit has not reduced in the last year despite LGC supply increasing year on year by 3.2 million and voluntary cancellations increasing by 1.6 million. This effective deficit is unlikely to decline in the short term. These dynamics may impact spot and forward LGC prices in the future.

Table 2.2 shows the volume of LGCs that must be surrendered by liable entities during 2024, 2025 and 2026 to ensure they do not forfeit the right to recoup shortfall charges. Some entities may choose to surrender LGCs earlier than required. With an effective deficit of 15.5 million LGCs we expect ongoing shortfall charge to be taken.

Table 2.2 Potential LGC demand from redeeming shortfall charge
Year due*Shortfall charge paid (million)Volume of LGCs (million)

*Liable entities generally have 3 years from the date the shortfall charge is paid to claim a refund by surrendering required LGCs. For example, entities paying shortfall charge in 2023 against 2022 liability will have until 2026 to recoup their shortfall charge.

Renewable energy guarantee of origin

In December 2022, the Australian Government released a policy position paper for renewable electricity certification under the Guarantee of Origin scheme (RE-GO). Submissions closed on 3 February 2022. A new mechanism is proposed to provide organisations with certainty around how renewable electricity would be recognised in the market, primarily after 2030. Coverage would extend to electricity for international export and below-baseline generation. This could support planning, contracting and investment decisions being made by businesses today and help position Australia as a trusted supplier of renewable electricity and low emissions products.

Below baseline generation is the large-scale generation (mainly hydro) that was in existence when the RET commenced and that does not earn LGCs. This generation is on average about 12,000 GWh per annum. Under the policy proposal, this could add about 12 million RE-GO certificates each year. However, the government’s policy proposal would only allow the use of these RE-GO certificates for voluntary purposes, including for programs such as Climate Active, GreenPower and the Corporate Emissions Reduction Transparency (CERT) report. Unlike LGCs, RE-GOs would not be available to the market to redeem shortfall or to meet liability under the RET.

Much of the generation that would be eligible for RE-GO certificates is eligible for International Renewable Energy Certificates (I-RECs). It is our understanding that much of the potential supply of I-RECs (and possible RE-GOs) is already contracted and sold through power purchase agreements (PPAs). As a result, we think the effective extra supply of certificates available to the market may only be about 2 million certificates and only for voluntary purposes. RE-GOs would be expected to trade at a material discount to the price of LGCs because they can’t be used for RET liability or shortfall redemption. Looking at the potential voluntary demand with NGER reporters, it is likely these surplus RE-GO certificates would be quickly consumed in additional voluntary demand and there will be no impact on the LGC price. This is all subject to potential legislative change in the future.

The Renewable Power Percentage (RPP)

  • The LRET requires liable entities to surrender 33 million LGCs annually until 2030. For 2023, this equals an RPP of 18.96%.
  • The CER will track certificate availability to meet RPP demand and report on this throughout the year.

LGC price falls from recent highs

LGC spot prices saw a period of relative stability during Q4, sitting around $65. Late December volatility saw spot prices closing the quarter at $57, with further decreases through January. This suggests liable entities finalised their positions for 2022 liability ahead of the 14 February surrender deadline. Most future vintages have broadly followed the spot price patterns over the quarter. Shorter term futures reflect the declining values more closely (see Figure 2.5).

The spot and forward price graphs below show how the forward markets since 2020 have underestimated the tightness of supply and demand and the effective deficit of LGCs.

It will be interesting to see whether the spot price changes once the market fully digests the level of the effective LGC deficit and the need for material shortfall charge to be taken for several years yet.

Non-RET demand for LGCs

The QCMR includes an analysis of LGC cancellations in the Renewable Energy Certificate Registry (REC Registry) for purposes other than mandatory surrenders against the Renewable Energy Target (RET) scheme. These cancellations could be voluntary to show progress towards reducing net scope 2 emissions or to meet state or territory government regulatory requirements.

This analysis breaks out the volume of LGCs by the reason for cancellation (the source of demand) to examine drivers of ongoing demand growth and help understand potential sources of growth in the future.

Cancellations are experiencing an ongoing period of growth and evolution. This includes sources outside of the previously used ‘voluntary demand’ description. To ensure this analysis remains useful for participants and to better inform the market, the CER has redesigned this analysis as “non-RET demand” and refined its approach to classifying cancellations to reflect the distinctions more accurately in the market.

This classification system is uniform across ACCU and LGC cancellations.

New classificationCovered activities
Voluntary demand
Cancellations made against voluntary certification programs (such as Climate Active and GreenPower) and organisational emissions or energy targets.
Local, state and territory government demand (LS&T)Cancellations on behalf of local, state and territory governments, such as to meet state renewable energy targets or offset emissions from state fleets.
Compliance demandCancellations by private organisations and corporations for compliance or obligations against municipal, local, state and territory government laws, approvals, or contracts. For example, to prove renewable energy for desalination or state Environmental Protection Agency requirements.
Other demandAll activities not covered in the previous categories, primarily due to lack of information available. This grouping has declined substantially as part of these new classifications.

Classification of this data is based on information available to the CER and may not be comprehensive.

Non-RET LGC cancellations totalled 7.4 million certificates in 2022 (see Figure 2.6), with almost 1.2 million LGCs cancelled in Q4. Annual demand increased by 1.6 million compared to 2021. This was primarily driven by GreenPower, local, state and territory governments, and growing corporate voluntary ambition to demonstrate renewable energy use. The 7.4 million LGCs has effectively increased total demand by 23% above the legislated 32.6 million LGCs. Voluntary demand growth has kept LGC availability relatively tight, creating upward pressure on prices and creating an incentive for additional renewable investment. Annual demand of 7.4 million LGCs is equivalent to the output of over 3 GW of utility-scale renewables and covers almost 3.6% of total electricity demand in the NEM3.


1 The 42.1 million refers to LGCs that have been validated by the CER during 2022 calendar year. This is different to eligible generation for 2022, which is estimated to be around 44,000 GWh (equivalent to 44 million LGCs). LGCs in relation to the 44,000 GWh will be created and validated throughout 2023.

2 Assuming typical wind and solar patterns and no major curtailment events

3 3 GW of renewables assumes a 30% wind and 70% solar PV split. Australian electricity usage refers to 2022 NEM demand sourced from OpenNEM.

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