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 the equivalent of 1 tonne of CO₂-e resulting from energy savings activities.

Who purchases energy savings certificates?

People interested in buying energy savings certificates include:

• Liable Entities, 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 Liable Entity depends on their compliance obligations.
• Intermediary agents who might subsequently sell the energy savings certificates to Liable Entities.
• Organisations or individuals interested in voluntarily purchasing offsets to manage their carbon footprint.

Liable Entities under the Energy Savings Scheme include all NSW electricity retailers and certain generators.

Review the list of Liable Entities

Pricing and penalty rates

The price of energy savings certificates is determined by the supply and demand for certificates and can fluctuate considerably depending on market conditions.

The scheme framework does not set a maximum price for energy savings certificates, but it does set a penalty rate which provides a theoretical ‘ceiling’ for the price of certificates. This is because penalties for energy savings shortfalls by Liable Parties are paid at the penalty rate.  The penalty rate is set annually and calculated in accordance with the Electricity Supply Act 1995. 

For the 2011 compliance year, the scheme penalty rate is $23.99 per certificate which is not tax deductible. In this case, once tax impacts are taken into account, the penalty cost to the Liable Entity is equivalent to $34.27 per certificate. At 28 November 2011, the spot price for energy savings certificates was $31.25.

Some organisations, such as brokers of environmental certificates, provide regular updates on wholesale market prices of energy savings certificates. Subscription to these services typically involves a fee.

Projected supply and demand for certificates

We have projected that the demand-supply balance will be tight into the foreseeable future. This is primarily due to the Energy Savings Scheme targets (which drive demand) nearly tripling between 2010 and 2012. The commercial and industrial sectors are yet to be fully engaged in terms of supply of energy savings certificates.  Nonetheless there remains an expectation of continued steady growth in supply. It is anticipated that there will be particular growth in commercial lighting activities, with additional stimulus to other sectors (and technologies) arising from a series of pre-application workshops and seminars being held. It is expected that these will lead to further applications for eligible energy savings activities from the commercial and industrial sectors, and assist in ensuring ongoing market liquidity into the future.

Figure 1:  Trends in the ESC spot price 

Note:  This figure shows a 4-week rolling average of the last market spot price.  This data accounts only for certificates traded through Next Generation Energy Solutions (NGES) and may not reflect the price paid by certificate buyers at the times shown.  The Scheme Administrator recommends that persons seek independent advice before buying or selling certificates, and cautions against making decisions based solely on this chart.

Data source: The Green Room, published by NGES (see www.nges.com.au).