SYDNEY - Australia's futures exchange operator ASX Ltd plans to establish a futures market for renewable energy by the end of the year as the country seeks to quadruple green power generation by 2020.
ASX said on Thursday it hoped to list futures and options contracts on Renewable Energy Certificates (RECs) before the year-end as demand grows for RECs to offset greenhouse gas emissions and as consumers seek greener energy.
We're just waiting for final regulatory approval but expect to make an announcement shortly, David Kresvan, ASX's manager of energy and environmental markets, told Reuters.
In Australia, RECs are a form of currency that can be earned by installing solar panels, wind turbines and micro-hydro plants. Each REC represents one megawatt hour (MWh) of electricity generated from renewable energy and can be traded once registered.
ASX will face competition from other firms that are also planning to launch a suite of environmental futures products, including enVex, 25 percent owned by Climate Exchange plc, the operator of the world's largest carbon market.
There will be a need for futures contracts but the market probably won't be big enough for several different ones even though it has significant potential for growth, said Gary Cox, vice president of commodities and energy at Newedge Australia.
enVex already operates in the over-the-counter (OTC) market in RECs that has existed for a number of years.
Certificates have been issued under state schemes that will be wrapped into a national scheme from Jan. 1, when a renewable energy law that mandates 20 percent of electricity must come from green power by 2020 goes into effect.
enVex uses the trading platform of Mercari, a unit of Sydney-based Financial & Energy Exchange, to match buy and sell bids from environmental brokers.
The RECs market is set to expand following the setting of the 20/20 target. Renewables produce 5 percent of Australia's energy supply at present.
There's billions of dollars in new investment required now to actually build the new generation assets that will actually create these certificates, said Kresvan.
He said the establishment of a REC futures market was likely to enhance transparency and liquidity in the existing OTC market.
It would also send a clear futures price signal that would allow firms to better manage their market risks as they adapted to a greener regulatory regime, said Kresvan.
While demand for RECs is set to grow next year, REC prices in the OTC market have slumped with recent weeks to the lowest level in two years.
RECs were being offered at A$36.80 ($32.2) on Thursday, down from a year high of A$51 in January, reflecting an already abundant supply of RECs as installers of solar panels claim certificates and as windpower generation grows.
Government incentive schemes to encourage solar energy have led to a surge in solar panel installations on household roofs. Solar hot water heaters have all proved popular.
There's a perception of oversupply with a very large number of RECs being generated from sources such solar hot water and heat pumps, said Marco Stella, an environmental broker at Nextgen, an Australian wholesale electricity and environmental credits broker.
As the spot price comes down the market mechanism should start to work and would likely have an affect on supply. (Additional reporting by Leonora Walet in Hong Kong; Editing by David Fogarty) (A$1 = 87.6 U.S. cents)