When a certificate price goes from about $30 to a record near $110, the cause is rarely one thing. For the Victorian Energy Efficiency Certificate (VEEC), several forces lined up: a target that kept rising, creation that did not keep pace, a surplus that wore away, and a penalty that told the market where the ceiling was. This piece takes them in order and explains how they stack, because the same logic will explain the next move.
The mechanics in one paragraph
Victorian Energy Upgrades (VEU), administered by the Essential Services Commission, sets an annual target for VEECs. Electricity and gas retailers (the liable entities) must surrender VEECs in proportion to their share of the market, or pay a penalty for any shortfall. Accredited persons create VEECs by delivering eligible activities such as efficient heating and cooling, hot water and lighting. Supply is what installers create. Demand is the target. The price is where the two meet. For an introduction, see why VEEC prices are so high and our page on how VEECs work.
Force one: targets ahead of creation
The 2025 target was 7.3 million VEECs. Creation ran behind the pace needed to hit it. When demand is set above what the market is supplying, the gap has to be filled from stored surplus or by pushing the price up to draw out more creation. The market did both.
Force two: the surplus ran down
A VEEC market holds a stock of certificates already created and not yet surrendered, which acts as a buffer. Over two years that stock was drawn down, and by the time prices peaked the buffer was thin. With a thin buffer, any shortfall news moves the price sharply. A deep surplus damps a price spike, a thin one amplifies it.
Force three: the penalty ceiling
A retailer will not pay more for a certificate than the cost of the penalty for not having one. That sets a practical ceiling. The prices near $110 were still below the effective penalty at the time, which is why they climbed so far. The government then raised the shortfall penalty rate to $100 (reported), to make sure liable retailers stayed in the market as buyers and to provide a buffer for short-term price moves. The design question for the scheme is how to keep the penalty high enough that retailers buy, and low enough that the price does not hurt households through retail bills.
Force four: costs and fees
Costs on the supply side rose too. Delivery costs, product costs and regulatory fees went up. Reported 2026 changes include a lift in the certificate creation fee from $2.33 to $4.35 and the energy acquisition statement fee from $3,122 to $4,829 from 1 January 2026 (check the VEU page). Higher costs raise the price needed to make creation worthwhile, which supports a higher price floor.
How the forces stacked
| Force | Effect on price | Direction |
|---|---|---|
| Target above creation | More demand than supply | Up |
| Surplus eroding | Less buffer | Up, with sharper moves |
| Penalty rate | Sets the ceiling | Caps the rise |
| Rising delivery costs | Raises the needed price | Up |
| Lower targets announced | Less demand | Down |
The response
In May 2025 the government announced lower targets for 2026 and 2027, 4.4 million and 4.6 million VEECs, citing a prolonged period of under-creation and an aim to rebuild the surplus. Creation was projected at about 6 million a year. Prices eased from about $91 to about $85 around the announcement (reported). In 2026 the spot has been roughly $85 to $95, with about $85 to $90 reported in September.
What a rising price did to behaviour
High prices attract creation. More installers entered the market, the volume of eligible activities rose, and the scheme drew more attention from the regulator. That is the loop in a certificate market: high price, more supply, then a policy response to correct the balance. See become a VEU accredited person if you are considering joining.
From the desk: When a VEEC price spikes, the instinct is to wait for it to go higher. The record near $110 came while the government was already preparing the response. If your margin is made at $90, sell at $90. The price you did not hold for is not a loss.
What it means for a job
At 20 VEECs a job, the move from about $30 (reported for 2020) to $110 raised certificate value from $600 to $2,200. At $90 it is $1,800. The leap shows why VEEC-supported jobs became attractive, and why the incentive customers see in Victoria is tied to a market price rather than a fixed rebate. Our VEEC price history compares 2024, 2025 and 2026 side by side.
How retailers experience the squeeze
A retailer’s obligation is set by its market share, and it has three choices: buy VEECs from the spot market, buy forward from creators, or accept a shortfall and pay the penalty. In a tight market the first becomes expensive, forward contracts disappear, and the penalty looks relatively attractive. That is why the penalty rate sets the ceiling. When it was lifted to $100 (reported), it signalled that the government wanted retailers to keep buying rather than treat a shortfall as a cost of doing business. The VEEC price therefore sits inside a corridor, with the surplus and the target pushing it around within the corridor and the penalty rate defining the top.
Why the price did not collapse when targets fell
Lower targets for 2026 and 2027 cut demand, yet the spot price stayed at about $85 to $95 rather than falling toward $30. The reason is the starting position. The market came into 2026 with a thin surplus, so even a smaller target needed creation to run steadily, and costs had risen. The government expected about 6 million VEECs to be created each year against targets of 4.4 and 4.6 million, which rebuilds the surplus over time. As the surplus rebuilds, the price has room to fall. How quickly depends on creation volumes, which depend on how many installers deliver eligible activities. Treat the early part of 2027 as the test of the policy.
For related reading, see the answer on VEEC prices today.
What to do next
- Check the current VEEC price and target on the VEU page before quoting
- Price at least 10% under spot and treat the rest as upside
- Compare traders on net dollars and settlement date, using the certificate trader checklist
- Read VEEC trading, the VEECs pillar and today’s pricing