The Victorian Government sets the VEU targets, with the current targets covering 2020 to 2025. The targets for 2026 to 2030 will involve consultation in (late?) 2024 and must be completed by May 2025. The government is committed to continuing the Energy Upgrade program beyond 2025, and the new targets will provide a clear direction for the program’s future through to the end of 2030.

As of February 2023, 13.5 M Victorian Energy Efficiency Certificates (VEECs) are registered or pending in the VEU registry against the VEU target for 2022 of 6.7 M (due for surrender by the Energy Retailers in April 2023). This will leave a surplus of at least 7 million VEECs against the 2023 target of 6.9 M VEECs. The VEET targets are currently set to the end of 2025 and, in aggregate (2022 – 2025), amount to 28 M VEECs (against which 13M have already been created). See current targets.

Surplus VEEC in the VEU registry over time and VEEC price charge. 2010 – 2023 – Image courtesy of DEECA (Vic Government) – February 2023 Market Update.

The VEEC price in February 2023 is sitting at $69.00. This is reasonably high and surprising, given the surplus of 7 M VEECs. The VEEC price remains high because the phase-out of lighting under the program has created uncertainty about where the remaining VEECs will come from. Residential, commercial and street lighting has registered 59 M of the 80 M VEECs ever created; 74% of all VEECs have come from lighting. Hotwater Heatpump, weather sealing, HVAC upgrades, and (Northmore Gordon’s favourite) PBA (Measurement and Verification) will generate significant numbers of VEECs as well as new methods yet to be announced, including Home Energy Rating Assessment (HERA), new HVAC and Hotwater methods, smart thermostats and potential building insulation.

For the past few months, the price has been relatively stable, in the past when new methods are released, or the market realises that substantial VEECs can be created from existing methods, then the VEEC price can move quickly. One such method is commercial and residential hot water replacing electric resistance. When new methods are announced or an existing method takes off then prices tend to move suddenly. The other important consideration is that at the end of every January, the forward emission factor for electricity in the VEU drops by around 20% reducing the number of VEECs from electrical energy savings by this much.

Below is the Victorian Government Department of Energy, Environment and Climate Action (DEECA) Roadmap for 2023 and consultation of new activities planned.

In addition to helping households and businesses save money on their energy bills, the Energy Upgrade program has helped to reduce carbon emissions by promoting the use of renewable energy sources and encouraging energy-efficient behaviour.

Disclaimer: This information is provided by Northmore Gordon based on factual market information and is not financial advice, businesses should make their own decision or seek professional advice by engaging with Northmore Gordon around their specific requirements.

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Reliance on price comparison websites

Price comparison websites are great if you are a domestic customer or small business user. However larger users need tailored pricing and tailored solutions. You can use your load size to your advantage with direct negotiation.

Not understanding the options

There are more than just fixed price or discount of tariff contract options. These are by far the most common, but electricity retailers have a suite of other contracts that could save you up to 50% off the regulated tariff. The retailers don’t often advertise these options as they make more money from the standard contracts and customers don’t always understand the more complex pricing structures. Knowing what options are available can help you choose one with the best risk profile for your business.

Re-contracting according to your contract expiry date

The standard procurement approach to purchasing electricity is to wait until the contract expiry date is approaching and go to market then. But electricity prices can be quite volatile and keeping an eye on the market and contracting during lower price periods can save you thousands of dollars.

Not negotiating after first round offers

There is always room for negotiation, and if you don’t ask you don’t receive. You may prefer one retailers’ contract structure and anothers’ price so don’t just accept the first offer as the only offer.

Supplier loyalty 

In new markets there can be fear that entering contracts with new players are riskier to go with, but the Energy Market Authority does a thorough due diligence check for all retailer suppliers before they issue a retail license. Some of the better pricing options come from the new market players as they have experience from other, more established electricity markets around the world.

Fear of supply disruption when changing retailer

If you change retailer there are no physical changes to the way electricity is delivered to your business. The Energy Market Authority manages the physical electricity network and ensures that supply meets demand. The meter reading is managed by SP Services. Changing retailer simply means that SP send your meter data to the new retailer for billing purposes. It is up to the retailer to manage the price that they buy and sell the power at – this is all done via the financial markets and has nothing to do with the physical delivery of power to your premises. 

Not being ready to sign when the contract is ready

Delays in signing the retail contract can get very expensive. The oil price is often used as a reference point for price validity, and as we have seen recently the oil prices have been changing rapidly on a daily basis. Once the final retail offers are in and you like the contract price and the structure then you must be ready to execute the contract before the price becomes invalid.

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