An ‘LGC’ is a tradeable unit that is equal to one megawatt hour (MWh) of net renewable energy generated and exported to the grid by a solar PV system more than 100kW. They are used as a trading mechanism for energy retailers to offset their purchase of non- renewable energy.
Similar to STC’s (a small-scale technology certificate), an LGC acts as a currency for renewable energy, and prices can thus fluctuate with supply and demand. Any solar installation over 100kW capacity is eligible to create LGC’s.
LGC’s are most often spot traded through a registered broker or directly with a liable entity, such as an electricity retailer or emission intensive industry. Both parties enter into a contract with a broker for a fixed term.
While LGC’s can be used to generate great benefit, they are a commodity created through regulation, and therefore a change in policy might impact their viability.
Another risk is that prices are difficult to predict, however they are likely to continue to decrease as more large-scale renewable plants come online.
Such risks can be mitigated by;
In 2024, Large-Scale Generation Certificates (LGCs) remain a key component of Australia’s Renewable Energy Target (RET), which aims to incentivise the development of large-scale renewable energy projects like solar farms. LGCs are earned by large-scale solar systems, with one LGC representing one megawatt-hour (MWh) of renewable electricity generated. These certificates can then be sold or traded, providing a financial return to the system owner.
The market for LGCs is expected to decline as Australia approaches the 2030 deadline for the RET. The RET will cease issuing LGCs after December 31, 2030, which is already influencing market prices. Many businesses are opting for fixed-price offtake agreements to lock in LGC prices and avoid the risks associated with market volatility. This approach provides financial certainty over the coming years as LGC prices are predicted to decrease due to the saturation of the market.
In terms of LGC creation, only the electricity that is actually used or exported to the grid is eligible for LGCs. For example, if a zero-export device prevents electricity from being fed into the grid, that portion of the electricity generation will not qualify for LGCs, reducing the overall financial return.
Businesses with existing or planned large-scale solar projects should carefully consider their LGC strategy, balancing the potential benefits of a fixed-price agreement against the possibility of higher returns from a variable price approach if the market conditions are favourable.
https://greenenergytrading.com.au/lgc-faqs