Australian Energy & Environmental Market Update - October 2025

Australian electricity spot market

Monthly electricity spot market trends

• Average monthly spot prices remained subdued this month with continued minimal demand records being set throughout Spring. The NEM volume-weighted average price (VWAP) rose by 1% from last month to $60 /MWh, reflecting mixed movements across the NEM states.
• NSW and QLD prices recovered, increasing by 2% and 8% respectively. QLD recorded the largest movement, as rising late-month temperatures lifted demand by 12% from September lows.
• VIC and SA markets continued their downwards trend with VIC dropping by 7% and SA by 13% from last month. Monthly average prices were the lowest recorded so far this year, with underlying demand remaining low for spring and VRE output holding relatively stable compared to last month.
• TAS again recorded the lowest spot market price across the NEM, experiencing a further 14% decline from last month. Strong hydro, rooftop solar, and wind generation throughout spring reduced reliance on imports resulting in downward pressure on pricing.
• With subdued pricing these conditions highlight risks for sell-side spot market exposed entities. Asset owners may rely on PPAs, swaps, firm blocks, and other offtake mechanisms. The lower merchant revenues for renewable energy projects could prompt LGC sell-offs as cash flow is managed during spring.

Daily electricity spot market trends

• Negative price events remained frequent across the NEM, with SA accounting for 44% of all trading intervals below zero.
• On 10 October, NSW spot prices surged to the market cap during a single interval 5:55pm (time starting), the first occurrence since February. At the same time, all other NEM regions experienced a drop in prices. The price spike may be attributable to a combination of factors:
  
  • Constrained interconnector flows on QNI towards NSW as well a counter-priced flow on VIC1-NSW1, which directed interconnector flows further away from NSW.
  • NEM-wide constrained flows, in which three of these contributed to ‘mispricing’, driving deep negative local price adjustments across all NSW generating units.
  • Low solar generation availability together with already offline coal units at Eraring (units 3 and 4), Bayswater (unit 4), and Vales Point (unit 5).

Electricity futures market

• Flat futures saw mixed movements across markets, with QLD and VIC observing the most significant month-to-month change. QLD Cal26 and Cal27 fell $1.99 /MWh and $1.15 /MWh, respectively, while VIC Cal26 and Cal27 rose $1.63 /MWh and $1.04 /MWh, respectively.
• Futures and caps trading volumes (MWh) increased compared with September and showed a notable uptick from year-on-year.
• Market activity in October was influenced by preparations for hot weather heading into Q4 2025 and Q1 2026, underscoring the current opportunities for buyers and the importance of implementing well-timed hedging strategies before seasonal changes.

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Renewables markets

NEM-wide variable Renewable Energy (VRE) penetration increased 0.25 percentage points from last month, reaching 41.79%. This growth was mainly driven by higher rooftop and utility solar generation, typical for the spring season.

Monthly rotating focus: Solar asset performance

Each month we feature a different asset type - rotating between coverage of solar, wind and BESS projects. This month’s focus is solar asset performance.

• NEM-wide average solar merchant revenue dropped to $4.4k /MW, a 51% drop from June, driven by a 71% reduction in NEM-wide solar DWAPs to $17.58 /MWh, considering stronger solar generation.
• Capacity factors rose to 22% NEM-wide, with QLD at 28% and NSW at 32%. The average solar DWAP of $17.58/MWh was 71% lower than June but 41% higher year-on-year.
• The top 10 performing solar assets were all located in NSW and QLD, with Limondale Solar Farm achieving total merchant revenue - more than three times the NEM-wide average -  likely influenced by its westerly location, roughly 800km from Sydney.

Looking for more in-depth renewables asset analysis?

Learn more about our Wholesale Energy and Offtake Market Report, an important and recurring pulse check for renewable energy buyers and seller.

Environmental markets

Large-scale Generation Certificates (LGCs)

• LGCs continued to face structural weakness, with persistent selling pressure dominating much of October.
• Spot and Cal25 contracts softened from a mid-$11/MWh range to sub-$10/MWh levels, while Cal26s and Cal27s followed suit.
• A modest recovery late in the month, particularly in Cal26s, reflected opportunistic buying rather than a shift in market fundamentals.
• Liquidity among the forward contracts remained concentrated in near-dated vintages, and options activity hinted at hedging strategies amid expectations of further downside.
• The OTC market remains generally cautious, with sentiment subdued and no major policy catalysts to reverse the current, long-standing macro trend.
• Broadly speaking, the LGC market continues to paint a grim picture of the value of LGCs being generated from existing renewable assets as well as those coming online out to 2030.

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Small-scale Technology Certificates (STCs)

• STCs fluctuated between surplus and deficit throughout October, driven by large-scale Government solar battery STCs (BSTC) purchases and strong weekly submissions (peaking >2 million).
• The Clearing House oscillated frequently, with the deficit narrowing to -109k before widening again to -1.26 million by month-end.
• Spot prices held firm around $39.90 /certificate, and forward trading remained active.
• The Q3 surrender cycle concluded with 6.5 million units surrendered, reinforcing sustained high participation. The cadence of Government purchases continues to anchor the market, supporting stable OTC volumes.
• Overall, the STC market continues to observe record high creations on the back of the Federal Government’s Battery Rebate Scheme, introduced in July 2025.

Victorian Energy Efficiency Certificates (VEECs)

• VEECs extended their multi-month decline, with spot prices falling from $93.25 to $77.75 /certificate by month-end. The announcement of new commercial solar activities (47A and 47B) triggered a sharp sell-off early in the month, as participants recalibrated supply expectations.
• While the Essential Services Commission estimates up to 300–400k VEECs created per annum from these activities, market sentiment remains mixed. Options activity, including longer-dated call spreads, suggests ongoing portfolio hedging. Despite intermittent rebounds, the curve remains under pressure, with participants cautious amid regulatory changes and uncertain creation volumes.
• Spot closed the month at $77.75 /certificate.
• As it stands, the market is still working to better understand the supply landscape and price implications resulting from the introduction of activities 47A and 47B.

Energy Saving Certificates (ESCs)

• ESCs saw a volatile month, with strong turnover volumes and consistent forward interest. Options activity was notable, with puts and call spreads traded in size (of order ~750k), reflecting active risk management.
• Registrations remained subdued, with sub-100k weekly volumes for five consecutive weeks, reinforcing tight near-term supply.
• The emergence of forward buying interest and firming spot levels suggest participants are adjusting for higher compliance costs and hedging against potential regulatory tightening.
• Spot closed the month at $24.75 /certificate.
• Notwithstanding the dip to below the $24.00-level in the month, the direction of travel for the ESC market is clear. Market proponents will monitor the pipeline of new supply, particularly of the diminishing Commercial Lighting activity, ahead of the next surrender.

Peak Reduction Certificates (PRCs)

• PRCs were the most dramatically impacted market in October. After weeks of speculation, the NSW Government announced a 95% reduction in the 2026–27 target, slashing it from 7.5% to 0.5%. This unprecedented move, aimed at easing pressure on the overheated residential battery market post-BESS1 suspension, shocked participants and undermined long-term confidence in the scheme.
• While future supply may emerge from new and nascent activities (e.g., commercial batteries, virtual power plants), the scale of the target cut has cast doubt on their viability.
• Spot prices briefly rallied to $3.15 /certificate mid-month before retracing to $2.85 /certificate, reflecting the market’s struggle to digest the news, closing the month at $2.60 /certificate.
• The target cut has severely reduced creation opportunities and shaken market confidence, leaving proponents uncertain about future stability despite upcoming consultations on new eligible activities. Proponents will watch closely for forthcoming registrations using the BESS2 activity, and any future proposed activities.

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Market news

Gladstone coal-fired power station could be retired ahead of schedule

• Rio Tinto has signalled that the Gladstone Power Station in Queensland, its oldest and the state’s largest coal fired plant (1,680 MW) currently scheduled for closure in 2035, may now shut by 2029, six years ahead of plan.
• Performance of the station has deteriorated, since 2020 the station’s average capacity factor has fallen below 45%, which is much lower than the black-coal fleet average (55%) and the worst performing across the NEM.
• The company emphasises no immediate operational change and will honour its current supply contracts, including Boyne Smelters Ltd ending in March 2029.
• The potential early exit raises significant questions for Queensland’s energy network and heavy industry users, especially given the plant supplies a large alumina and smelting complex, and underscores the accelerating shift away from coal as renewables become more competitive.

Tender 4 Capacity Investment Scheme winners announced

• The Capacity Investment Scheme (CIS) Tender 4 results were announced in early October 2025, highlighting continued strong momentum in hybrid renewable projects. Solar + BESS hybrids dominated the successful bids, accounting for 52% of total allocated capacity (3.4 GW).
• NSW hosted the largest share of successful assets, followed by QLD, reflecting both states’ rapid renewable buildout within their Renewable Energy Zones (REZs) – five of six NSW projects and all six QLD projects are in REZs.
• The winning projects demonstrate a shift toward longer-duration storage, with an average BESS duration of 3.2 hours, compared to earlier rounds averaging closer to 2 hours. Fourteen of the 20 winning projects already hold development approvals (DA), though only one project has received grid connection approval, signalling ongoing network and regulatory challenges.
• Nationally, this round delivered a diverse mix of assets, adding significant dispatchable capacity to help firm renewable generation and strengthen grid reliability as Australia phases down coal generation.
• Comprehensive insights into the CIS tender outcomes are available in CORE Markets’ offtake market report.

What this month’s developments mean for market participants

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Australian energy market

Subdued wholesale pricings highlights risks for sell-side spot market exposed entities. Asset owners may rely on PPAs, swaps, firm blocks, and other offtake mechanisms to manage volatility. The lower merchant revenues for renewable energy projects could also prompt LGC sell-offs as cash flow is managed during spring.

For buyers, these conditions create an opportunity to secure contracts and hedge ahead of likely summer price increases. Strong solar output in NSW and QLD reinforces the importance of regional performance insight when shaping procurement or investment strategy.

These dynamics are explored in CORE Markets’ Wholesale Energy and Offtake Market Report, which outlines current contracting structures, price signals and risk management approaches across the renewable energy market.

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

LGC prices continued to ease through October as surplus supply remains priced into 2030, while STCs stayed firm on strong creation under the Federal Battery Rebate Scheme. VEEC and ESC markets remain active, with participants watching new activity types and tightening supply pipelines ahead of next surrender deadlines. The sharp PRC target cut has constrained creation opportunities and dampened confidence in new project activity.

Staying ahead of these regulatory and pricing shifts will be key to optimising procurement and managing compliance costs.

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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