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Weekly carbon trading update - 7th August, 2017

Market developments

  • Carbon closes18c higher at €5.37
  • Reduced August auction volume period commences
  • First of the reduced volume auctions is bought by just one bidder at 34c premium to the market
  • Clean dark spreads tumble as power fails to match carbon and coal gains
  • Energy Aspects revise price forecasts higher
  • Interim deal could extend UK participation in the EU ETS

EU Allowance Auction Overview

  • Auction volumes falls to ~10.8Mt, down from ~13.2Mt last week
  • August auction volume falls to ~44Mt from ~91.5Mt in July

Carbon Forward 2017 Programme has been released, venues announced

LIMITED AVAILABILITY: for installations producing less than 1 million tonnes of CO2 Redshaw Advisors have negotiated rates with up to 70% off! See advert below. Register your interest. This year's conference will be held at the 5-star Canary Riverside Plaza Hotel in London's Canary Wharf.

EUA Price Action

Carbon added a further 18c last week as auction supply restrictions and higher than average temperatures left the carbon market short. Last week was the first affected by the halved auction volumes through August as just over 13Mt came to market, down from 21.5Mt the previous week. The main talking point for the week was Tuesday's auction that cleared at €5.60 - a record 34c premium to the secondary market at the time. It was also the first time a single bidder scooped the entire volume on offer. It is hard to say exactly why this occurred but the most plausible explanation is one of human error, either a bidder forgetting the volume was reduced or forgetting to delete a superfluous bid. In the immediate aftermath, the market rallied but topped out at €5.38, still some 22c shy of the clearing price. Carbon made further gains over the rest of the week however, having failed to test €5.50 for three days in a row, prices fell away on Friday as a weak auction and falling clean dark spreads coincided. The clean dark spreads suffered losses up to 10% as power fell and coal prices rose. Price Impact: aside from the auction drama there was little to note last week as the market traded within the recent range and traded volumes were unremarkable.

Week ahead

The coming 3 weeks are likely to be the quietest of the year as the holiday season reaches its peak. That said, the lower the liquidity the more prone the market becomes to volatility. Auction supplies fall further this week and temperatures across Europe look set to continue providing support through demand for electricity by air-conditioning. Additionally, hydro stocks remain low and the nuclear generation picture is unlikely to improve in the short term. The combination of these factors make it hard to see any dramatic declines for carbon in the coming week. However, the clean dark spreads turned lower last week and further declines could cool utility interest in the market beyond any additional short-term requirements. Overall, we maintain a neutral outlook for the coming week with half an eye on volatility.

Other News

Energy Aspects shift 2017 and 2018 price forecasts higher

Energy Aspects have shifted their price forecasts for the remainder of 2017 and 2018 higher as continued nuclear outages and low hydro availability across much of Europe have strengthened the fundamental picture. Additionally, increased industrial output and much improved power generation spread returns have underpinned prices in the carbon market despite the heavy supply through July.

The forecast adjustments came with a warning that the potential for any further upside is limited as year-on-year increases in Q4 2017 auction supply and the return of nuclear power stations from maintenance outages will put the brakes on price increases.

To receive the Energy Aspects monthly-updated price forecasts and market analysis in full, please contact Redshaw Advisors.

Interim deal could extend UK participation in the EU ETS

A proposed transitional period for the UK, post Brexit, could extend the participation of UK installations in the EU ETS. The UK government is said to be seeking an interim period that would end by the next general election in 2022. According to Energy Aspects an interim deal would effectively maintain the ETS status-quo until 2022 and help secure a more orderly exit for UK installations.

The negotiations will be closely watched by UK and EU installations as the outcome of Brexit negotiations could have a material impact on both the price of EU Allowances and the requirements of companies with UK installations to buy EUAs. See our website for our view of the UK government's ETS options.

 

Carbon Forward is back and Redshaw Advisors announced as official partner

The EU ETS is changing and those with most at risk, industry and aircraft operators, are in most need of understanding the impacts of the changes. The Carbon Forward 2017 conference will, with the help of a line-up of expert speakers, examine the issues affecting companies with exposure to the EU Emissions Trading System (ETS) and provide some answers. The conference will focus on:

  • Brexit - the effect on EUA prices and UK emitters
  • Carbon price rises - how the Market Stability Reserve changes everything
  • Free allocation - how the Phase IV (2021-2030) review impacts your bottom line
  • Advice - how to maximise free allocation and receive grants for new technology

EU ETS emitters are already expected to foot the bill for Europe's flagship emissions reduction programme so to help reduce the financial burden Redshaw Advisors have negotiated special discounts for you. .

Interested in attending or finding out more? Fill in your details here and you will receive regular updates on the latest speaker announcements, program developments and special offers. More information can also be found at www.carbon-forward.com.

Alternatively, if there is something you would really like to see in the conference program please drop us an email with your suggestion(s) and we will let you know what we can do to make it happen.


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