Market basics

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This page describes the market for energy savings certificates, including information on certificate pricing and penalty rates

What are energy savings certificates?

An energy savings certificate is a tradable certificate created under Division 7 of Part 9 of the Electricity Supply Act 1995. Each energy savings certificate represents one notional megawatt hour (MWh) of energy.

Who purchases energy savings certificates?

People interested in buying energy savings certificates include:

  • Scheme Participants, who are required under NSW legislation to acquire and surrender energy savings certificates or pay a penalty. The number of energy savings certificates required by a Scheme Participants depends on their compliance obligations.
  • Intermediary agents who might subsequently sell the energy savings certificates to Scheme Participants.
  • Organisations or individuals interested in voluntarily purchasing energy savings certificates for the purpose of offsetting energy use.

PLease refer to the Scheme Participants  page for more information.

Certificate pricing and penalty rates

The price of certificates varies due to supply and demand and can fluctuate considerably depending on market conditions.

There is no maximum price for a certificate. However, the penalty price acts as a practical maximum price - if a Scheme Participant does not surrender the required number of certificates in a given year (excluding any shortfall it is allowed to carry forward to the next compliance year), it must pay a penalty.

The penalty rate is set annually, and is published on the targets and penalties page of the ESS website.

Some organisations such as the Australian Financial Markets Association (AFMA) and a few environmental brokers provide regular updates on certificate wholesale market prices. Subscription to these services typically involves a fee.

Creating and selling certificates

Most energy savings certificates are traded by direct contract between an Accredited Certificate Provider and a buyer. Contracts and prices vary and there are currently no standard contracts or a recognised exchange for trading energy savings certificates. We are currently aware of three types of contracts for trading certificates:

  • Spot contract
  • Forward contract
  • Option contract

For further guidance on contracts and dealing with contracts for energy savings certificates, please refer to the Environmental Product Conventions published by the Australian Financial Markets Association.

Please note that when dealing with some contracts, you may need to hold an Australian Financial Services Licence (which are issued by the Australian Securities & Investments Commission). You should seek independent advice on your obligations in relation to your chosen contracting model.

Anyone can negotiate directly with a Scheme Participant to sell energy savings certificates. Some require a small number of certificates to meet their compliance obligations, and prefer to negotiate with Accredited Certificate Providers directly to avoid dealing with standard parcel sizes (of 5,000 certificates) traded in wholesale markets.

The title of the person responsible for acquiring certificates will vary from company to company but may include the Regulatory Manager, Compliance Manager, Environmental Manager, Carbon Manager, or Head of Trading.