What is the difference between LGC’s and STC’s?

One of the first questions asked when talking to someone new to the renewable energy market in Australia is; “What is the difference between LGCs and STCs?”.

LGCs (Large-scale Generation Certificates) and STCs (Small-scale Technology Certificates) are both types of tradable certificates that are designed to encourage the development of renewable energy generation sources. However, there are several key differences between the two.

Generating LGC’s & STC’s

The main difference between LGCs and STCs is the size of the renewable energy system that they are associated with.

LGCs are created for large-scale renewable energy generators, typically those with a labeled capacity of over 100 kW. Solar is often the “go to technology” when you think of LGCs. However, eligible energy generators can also include wind farms, biogas generators, hydroelectric power plants and other approved renewable energy sources.

In contrast, STCs are created for small-scale renewable energy systems, typically those with a capacity of less than 100 kW. Examples of small-scale renewable energy systems include; rooftop solar panels, small wind turbines, and in the situation of avoided energy usage rather than generation; heat pumps for things like domestic hot water.

Trading LGC’s & STC’s

Another difference between LGCs and STCs is the way in which they are created and traded. 

LGCs are created by an accredited power station under the supervision of the Clean Energy Regulator, and are traded on a national market. Buyers in this market include energy retailers or generators who have an LGC liability, businesses wishing to surrender LGCs against scope 2 emissions, and speculative traders investing in the clean energy space. This market can be quite volatile and is best monitored closely by those engaged in it.  

STCs on the other hand are created by individuals or companies who install small-scale renewable energy systems. They are then sold to electricity retailers or other entities who are required to meet their own small scale renewable energy targets. The market and price for STCs has been considerably less volatile than LGCs in recent years. This is due to an STC having no carbon attribute attached to it, making it less appealing to businesses wanting to surrender certificates, or investors looking to buy and trade. 

Value of LGC’s & STC’s

Finally, there is a difference in the value of LGCs per year and “Vintage” as opposed to STCs. Recently LGCs have had a higher value per unit than STCs, this is despite STCs having sat at or just under the maximum value placed on them under the RET program of $40 for several months. This is due to STCs being under-created in relation to Australia’s energy goals for 2022, skewing the supply and demand ratio within the market. The fact that LGCs have remained at a higher value than STCs reflects both the larger scale and demand for LGCs, and a higher ceiling price per certificate. Interestingly though, if we go back 5 years it was forecast that LGCs would be worth far less, or even worth nothing at all by 2023. Despite this, for a brief moment in 2022, LGCs became the single highest value certificate in the Australian market. This is proof that the private sector is rapidly demanding cleaner and greener energy.

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Summary

While both LGCs and STCs are designed to encourage the generation of renewable energy they differ in many terms. The size of the renewable energy system they are associated with, the way in which they are created and traded, their value in carbon accounting practices and their financial value are all differences between the two.

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