Are STC’s a blessing or a curse?
Small Scale Technology Certificates (STC’s) a bit like little brothers.
They are part of what makes the world go around, can be really helpful and would be very hard to live without. We secretly love them. On the flip side they can be frustrating, confusing and add risk to day to day life. Life would be simpler without them.
I’m sure you all understand the history of where STC’s came from and the current program rules, so I won’t go through the details (although you can learn more here if you are interested). However, lately the price has fluctuated substantially for the first time in many years so we thought we would talk about the risks and how to minimise them as a solar dealer.
What is the risk of a price change?
STC pricing typically hovers around $35-$40 per STC. However, it has gone as low as $12 in the past. The value of STC’s can be affected by many things but it’s mostly about supply and demand compared to the annual target level for them which is set each year by the Clean Energy Regulator.
If too many STCs are being created compared to the target number (ie when the solar market is running red hot) there is a strong chance the price will drop because the buyers of STCs simply aren’t obliged to buy anymore. It’s a bit like a stock commodity in that way. Sometimes, this can happen very rapidly as we have seen in the past.
It’s also important to know that some companies (typically the large banks) can massively influence the price by stepping into the market opportunistically to buy large volumes. If you have the money and can afford to sit on millions of dollars of STCs for a year or so and can buy them at the right price and have good relationships with potential buyers it can be a good strategy. However, it can wreak havoc with the market price.
Likewise, some very large solar companies can afford to “sit” on their STCs without registering them. This can also affect price because they are invisible to the market, suggesting slow demand. Then, in a blink of an eye they can dump hundreds of thousands of them into the market when the price is right, suggesting oversupply and the price suddenly crashes again. This has happened many times and was one of the factors in the recent price drop.
In 2017 we have seen the price fluctuate substantially for the first time in several years. Talking to just a small sample of solar dealers revealed millions of dollars of losses associated with the price drop so this has really hurt many players already who didn’t understand the risks or just got caught.
No one can say for sure what will happen with STC prices in the remainder of the year, but we do know this:
1)the market is experiencing very strong demand creating lots of STC’s
2)we have already seen volatility
3) we know that monthly STC volume is way above the average weekly target for demand and is in an oversupply situation with quite large excess volumes likely for the year
So, there is a lot pointing towards increased risk.
Managing STC risk
Here are three popular ways to manage your STC’s:
1)use a really well tuned in solar broker who can advise you, partner with you and manage the risks for you (but beware of sharks! We have seen many rogue STC traders over the years)
2)use your solar wholesaler who may do deals on your behalf for stock (but make sure you understand the terms and conditions!)
3)set your-self up as a registered self-trader (thereby taking on all the responsibility for compliance, risk, trading and cutting deals with buyers)
Each has their own pros and cons, so it’s up to you to decide which is most suitable depending on your business capabilities and ambition but be warned – if you do grow big, the risks on STCs grow with you! Don’t forget, the STC deeming rate declines each year too so you need to factor that into future plans.
Till next time, The Juice.