Weekly carbon trading update – 17th July, 2017

Market developments

  • As expected, carbon ends the week flat having hit a €5.62 high intra-week
  • Further intra-week power and coal gains fuel the attempted moves higher
  • Clean Dark Spreads strengthen further as EUR gains against USD
  • Phase IV trilogue meeting yields nothing of note
  • France planning large scale nuclear power closures

EU Allowance Auction Overview

  • Auction volumes slightly higher at 22.1Mt v 21.5Mt last week
  • August auction volume falls to ~44Mt from ~91.5Mt in July

Carbon Forward 2017 Programme has been released, venues announced

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EUA Price Action

Carbon closed flat last week having reached an intra-week high of €5.62 as generation spreads continued to improve, aided by further strengthening in the EUR/USD rate. The week began with further improvement on the previous week’s stellar gains as power prices moved higher. However, carbon was unable to hold on to the gains as a combination of speculative resistance and power prices retreating from their highs took carbon prices lower into the end of the week. We highlighted in last week’s update that prices above €5.50 would likely be an attractive sell for speculators and so it proved. Prices fell to the low of the week at €5.27 on Tuesday as power continued to lose ground. From there carbon managed to recover as the generation spreads continued to offer good support. Big gains in the CDS on Thursday helped propel carbon to the high of the week at €5.62. The move higher met solid resistance and a sharp sell off pushed prices down to €5.35 at the close. Friday played out in a relatively tight range having spent time in both negative and positive territory to end the week just one cent higher.  Price Impact: with speculators taking short positions above €5.50 it becomes a key level for short-term price action. If prices continue to test this level it will be down to utility hedging and may lead to further gains if speculators are forced to close out or reverse positions.

Week ahead

It is likely the coming week provides the answer to the question on current utility hedging. Auction volumes remain high for the next 2 weeks, however, after that they tail off through August as volumes are halved. Fundamentally this should be bullish but last August we saw material price falls as utilities and industrials stepped away from the market, leaving no buyers for the reduced auction volumes. Speculators will be buoyed by the fact this August sees a ~20Mt year-on-year increase in volumes without any obvious sizeable increase in demand. 

Other News

Latest trilogue meeting yields little progress

Trilogue negotiations will resume in September following the latest round of talks last week that yielded little of note. The latest meeting is said to have followed the same path as previous ones with the interested parties merely restating their positions rather than any signs of compromise on the differences.

Talks will resume in September, however, there does not appear to be a firm date set yet. Doubling the withdrawal rate of the MSR to 24% remains firmly on the table.

France will see large scale nuclear power closures to meet 50% target

To meet its target of no more than 50% of its power coming from nuclear power, France will need to shut up to 17 reactors according to the Energy Ministry. The cap is due to come in 2025 on the current fleet of 58 reactors

The form that replacement power generation takes will be key to carbon market price impacts as anything other than renewable power will cause French emissions to rise and for there to be higher demand for allowances. The nuclear closures will coincide with the time when the MSR has really tightened the market so replacement with fossil fuel sourced power will almost certainly move EUA prices.

Carbon Forward is back and Redshaw Advisors announced as official partner

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  • 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.