Australian Energy & Environmental Market Update - May 2025

Australian electricity market

• The NEM-wide volume weighted average spot price decreased by 15% month-on-month, dropping to $79.94 /MWh. This NEM-wide trend was driven by significant movements in QLD and NSW, down 25% and 28% respectively. Conversely SA remained relatively stable, while VIC and TAS increased by 15% and 12% accordingly.
• Daily average spot prices remained relatively stable this month in all NEM regions except NSW, which experienced several high trading intervals on the 13th and 28th of May.
• On the 13th, NSW nearly reached market cap, peaking at $17,479 /MWh across five trading intervals at 4:40pm, before softening in the evening. While this reflects typical seasonal patterns - rising evening demand and reduced solar output - the primary driver was transmission constraints in southwest NSW. The constraints triggered local price adjustments, curtailing wind generation in the region which paired with the VIC-NSW interconnector being constrained to south-bound flow saw increased reliance on gas and hydro generation.    
• Following two months of steadily increasing prices in the Futures markets, supported by market sentiment around a strong Q2 which has not eventuated, prices decreased across all vintages through May. This price decrease was compounded by traders selling out of positions, with traded volumes more than doubling compared to April.

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Renewables & BESS markets

Overall, NEM-wide variable renewable energy (VRE) penetration decreased by 2.53 percentile points, to land at 30.9% this month. This reflects a seasonal shift, where increases in wind generation across all NEM states were outweighed by, significant declines in both utility-scale and rooftop solar.

Monthly rotating focus: BESS asset performance

Each month we feature a different asset type - rotating between coverage of solar, wind and BESS projects.

This month's focus is BESS asset performance.

• Net NEM-wide BESS market revenue increased across both energy and FCAS markets for the second consecutive month in May, with a total month-on-month increase of 22%.
• While VIC and SA’s revenue decreased by 8% and 10% respectively, with both states experiencing minimal price volatility, the NEM-wide trend was largely driven by NSW’s revenue which doubled in May, complemented by month-on-month growth of 12% in QLD.
• All states recorded a 21-37% drop in FCAS revenues, except QLD, where contingency FCAS prices surged tenfold compared to the previous month. This spike was primarily driven by an outage on the Armidale to Dumaresq transmission line on May 13th.
• As a result, QLD assets recorded the highest total monthly revenue compared to other states, at $7.15 million, despite relatively lower energy arbitrage revenue with FCAS accounting for a considerable 52%.
• The last three months have also seen a considerable increase in BESS assets with almost a GW of new assets being registered, alongside ~1 GW of capacity moving through commissioning. Importantly, the NEM wide registered energy capacity has increased significantly with the Eraring 3.8-hour BESS project bringing the total to just shy of 8GWh.

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Environmental markets

Large-scale Generation Certificates (LGCs)

• The LGC market was highly active and volatile throughout May, with significant forward and options activity through May. Spot prices fell steeply early amid thin liquidity and macro uncertainty. Forward vintages saw heavier declines, with Cal26s and Cal28s down in the greatest percentages.
• On the 3rd, deep options activity emerged in reaction, 150k each of Cal25 ~$16/MWh Puts and ~$21/MWh Calls, flagging divergent views. The market rebounded by the 7th, and momentum built into the mid-month. A major turning point came on 16th with the announcement of the 2026–27 VEU targets, sparking strong buying.
• The rally extended through the later half of the month, with a peak on the 23rd with spot at $21.25/MWh.

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Small-scale Technology Certificates (STCs)

• The STC market was largely dormant through May, with only sporadic forward trades breaking the calm.
• Throughout the month, the Clearing House deficit narrowed from 3.4 million certificates to 2.8 million, but pricing action remained limited.
• The Clean Energy Regulator (CER) held a webinar at the end of May to outline details of the new SRES battery incentive and its potential overlap and stacking with the Peak Demand Reduction Scheme (PDRS) in NSW for home behind the meter solar/battery systems.

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Victorian Energy Efficiency Certificates (VEECs)

• The VEEC market endured a volatile month, defined by the registry updates and heavy forward action. Spot prices dropped from $93.60/tCO2-e (30th of April) to $85.00/tCO2-e in late May, with the steepest weekly fall of 6.5% by the 3rd driven by heavy selling and increased certificate approvals ahead of the registry shutdown on the 23rd. A turning point of sorts came on 14th–16th of May with the passing of the Victorian Energy Upgrades (VEU) Program Amendment Bill passed. This extended the scheme out to 2045 and crucially relaxed vintage restrictions. Targets of 4.4 million certificates (CY26) and 4.6m (CY27) were confirmed. These figures being at the lower end of market expectations. Shock however was born of the announced penalty increase to $100/tCO2-e (up from $90/tCO2-e), triggering further decline in the spot price. Spot closing the month at $89.25/tCO2-e, down 4.65% from April’s close of $93.60/tCO2-e.

Energy Saving Certificates (ESCs)

• The ESC market was subdued early in May, with flat trades at ~$15.25 - $15.50/MWh, but broke out from 6th onwards, rising to $15.75/MWh on moderate volume. Despite continued high weekly registrations, prices remained resilient. The 21st of May saw the release of DCCEEW’s NSW draft statutory review of the Energy Saving Scheme, which proposed no immediate scheme changes. It did however flag certain risks in the holding of surplus stock for activities. Following this, bullish forward sentiment and clearer policy settings helped underpin the steep rally despite the continual oversupply. Spot closing the month at $17.30/MWh, up 13.44% from April’s close of $15.25/MWh.

Peak Reduction Certificates (PRCs)

• PRC prices fell sharply through early May, driven almost solely by expectations of accelerated home battery installations under Labor’s post-election policy release. Spot slipped from $2.40/certificate (on the 30th of April) to $2.18/certificate by the 7th. The forward curve remains soft, with concerns that the continual abundant supply will suppress pricing further despite policy-based demand growth. Pricing may however be sensitive pending updates to the final form of the home battery scheme and its potential ability to interact with the federal STC scheme. Spot closing the month at $2.07/certificate, down 13.75% from April’s close of $2.40/certificate.

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Looking for ACCU coverage? Read our ACCU Market Monthly Report here.

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Market news

NEM Wholesale Market Review

• Throughout May the NEM Wholesale Market Review Open Forums were hosted in each NEM state. The NEM Review Expert Panel was engaged to conduct an independent review to be presented to the Energy & Climate Ministerial Council. The review centres predominantly around: the short-term spot markets (5-minute demand/dispatch physical market), medium-term energy derivative markets (daily to 3-year futures/option financial markets), and the long-term investment markets (large-scale offtake, PPA and equity space).
• The short-term spot/physical market review will seek public input and discussion on improvements to the demand signalling in a system with rapidly increasing VRE penetration. While the spot market is generally efficient at dispatch, a growing share of generation is now coming from energy resources invisible to the market.
• As the NEM evolves toward increasing weather-dependency, medium-term derivative markets are become critical to risk mitigation. Concerns have been raised on the liquidity of these derivatives and the viability of the market in its current form despite innovation in trading platforms, as well as an increased push for more renewable-focused derivatives, such as unique time-of-use products.
• Finally, in the long-term offtake and investment space there is a clear need from the sector for more durable signalling for investors and generators alike. This is crucial to overcoming the ‘tenor gap’ between buyer contracting appetite and seller return certainty. The current imbalance leads to shorter-term offtakes which do not provide sufficient investments signals to build the VRE/BESS capacity required to meet the federal energy transition roadmap. As such, addressing this tenor gap has become central to the outcomes of the NEM review.

Woodside’s North West Shelf (NWS) project to be extended by 40 years

• The Federal government has granted Woodside approval to extend the operation of its onshore gas plant to 2070, a move expected to lock in more than 4 billion tonnes of climate pollution (equivalent to 33 years of Australia’s annual emissions).
• Proponents argue the extension is necessary for energy security and economic stability, particularly in WA. Prime Minister Anthony Albanese defended the decision, stating that gas is needed to support WA’s transition away from coal, with the last coal-fired power station at Collie set to close in 2027. He emphasised that firming capacity (including gas) is essential to enable investment in renewables.
• However, this justification is increasingly being challenged. Only 15% of the gas is earmarked for WA’s domestic market, and just 0.7–1.0% of WA’s gas supply is needed for electricity generation over the next nine years. Experts argue that WA already has sufficient gas reserves to meet this demand without the North West Shelf extension.
• Moreover, while most of the gas will be exported, the domestic emissions from extraction and processing alone are expected to reach 7.7 million tonnes per year, contributing significantly to Australia’s Scope 3 emissions, and creating further barriers to achieving 2030 and 2050 environmental targets.
• This decision has also drawn international scrutiny, particularly from Pacific Island nations who signalled that they may withdraw support for Australia’s bid to co-host the COP31 climate summit if the project proceeds, framing it as a test of Australia’s climate integrity.

Draft 2025 Electricity Network Options Report Released

• AEMO has announced a review of its national transmission strategy due to soaring costs and social license issues. Transmission costs for new projects have surged by up to 55% over the past two years, driven by factors such as supply chain pressures, project complexity, and challenges in gaining community and landholder engagement. These social license issues have led to additional costs and project delays. In response, AEMO is incorporating new land use analysis to avoid complex areas for transmission infrastructure.
• The 2026 Integrated System Plan (ISP) will revisit previously identified transmission projects, except projects that are already committed, in a bid to limit the impact on consumer energy bills. AEMO is also engaging with distribution networks to explore their potential role in hosting renewable and storage projects at lower costs. The ISP aims for Australia’s main grid to achieve 82% renewables by 2030, and net zero by 2050, replacing coal with solar, wind, and storage. Within the constraints of these targets, the focus remains on minimizing consumer energy bills while advancing the green energy transition.

What this month’s developments mean for market participants

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Australian energy market

Following a considerably volatile market in April, May’s subdued spot and futures markets highlight revenue sufficiency concerns raised by the NEM Wholesale Market Review. This underscores the importance of strong market understanding and effective market hedging strategies to minimise the impact of seasonal variations in market outcomes.

The CORE Markets team partners with renewable energy developers and corporate buyers to manage market risks.  Get in touch to explore how we can support your energy market approach.

Australian environmental markets

The LGC market remained in a lower trading range despite some short-term volatility, offering a strategic buying window for organisations seeking to meet sustainability goals at a lower cost. With ESC and especially VEEC markets showing price movements based upon policy and compliance dynamics, staying ahead of these regulatory changes can help guide procurement strategies to take advantage and keep costs low.  

The CORE Markets team supports demand and supply side market participants in navigating these markets – across strategy, procurement and trading execution. Get in touch to learn how we can support your goals.

Do you need help navigating energy and environmental markets?

The events outlined in this month's update highlight the evolving nature of energy and environemental markets and the complexity of the net zero transition.

To discuss your unique requirements, get in touch with our team today to see how we can help.

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