Weekly carbon trading update –26th June, 2017

Market developments

  • The week ends near-flat at €4.88 despite the increase in auction volume, up 10M tonnes from the previous week
  • German clean dark spreads were seen weakening in comparison to last week’s although they are still at a high level.

EU Allowance Auction Overview

  • Auction volumes this week down to 21.5Mt from 22.1Mt last week
  • Upcoming July auction volume (~91.5Mt) is substantially higher than June (~83Mt)

Carbon Forward 2017 Programme has been released

Register your interest to receive the programme and be kept up to date with the speaker and sponsor updates, including early-bird specials and the special rates that Redshaw Advisors have negotiated for industry with emissions below 1Mt per year – up to 70% off! See ‘Other News’ for more information.

EUA Price Action

The carbon market was very stable considering the 73% increase in supply made available. Auction bid coverage ratios remained at near-average levels indicating good buying interest. The inability of price to drop or rise significantly despite almost 10M more EUAs coming into market indicates that there is a fairly strong demand from power generations despite lower German baseload power prices and less healthy clean-dark spreads compared with previous weeks. Hotter than normal temperatures across the whole of Europe increased the demand for air cooling systems and is the most likely reason for the support. Extremely low levels of Hydro power in countries like Spain (28.1% lower than the same time last year) has also added to the strengthening demand side.

Week ahead

Another week with high auction volume levels, much milder temperatures and the beginning of summer and the holiday season will most likely test the market to the downside. Our outlook is bearish for this week and for the following weeks until prices reach low enough levels to tease out anticipated compliance buying around €4.60-4.50 levels.

Window of opportunity? The compliance deadline is out of the way for everyone for another year but the real carbon risk, MSR-induced price change, doesn’t go away so conveniently. The medium-term outlook for carbon prices is bleak but Energy Aspects’ longer term forecasts tell us that they are set to move substantially higher. To discuss your exposure and how we can help you get on top of it before the market reacts to the MSR’s start in January 2019, feel free to get in touch: info@redshawadvisors.com

Other News

30/ton carbon price would phase out coal from Europe’s energy mix

A report released by a German NGO has stated that a carbon price floor set at €30/EUA, as recommended by French president Macron and the German SPD parties, would cause average coal fired power costs to  rise to €55/MWh from current levels around €35/MWh and gas to €47/MWh from €39/MWh. This would push coal almost completely out of the merit order. The report also argues that a carbon floor price this high would reduce emissions by a further 55M tonnes/year and incentivise further renewable energy capacity.

Any German decision on the carbon price floor is unlikely to be taken before the General election in September, meaning that, if a potential agreement is to be reached, it won’t be made in time to be included in the EU ETS Phase IV initial directive.

UK installations could remain within the EU ETS without remaining under ECJ jurisdiction

According to a paper released by the trade group Euroelectric the UK could stay part of the EU ETS without falling under the European Court of Justice’s jurisdiction, as does Norway, who participate in the EU ETS under the European Free Trade Association (EFTA). The paper also argues that a decision on the exit (or not) of the UK from the EU ETS will need to be clarified by October 2017 to give UK utilities the clarity they need to continue their current hedging and risk management behaviour.

Carbon Forward is back and Redshaw Advisors announced as official partner

Redshaw Advisors are pleased to announce that we will once again be the official conference partner and training day provider for the annual Carbon Forward conference to be held in London on 26th-28th September 2017. The conference will give carbon market participants from all over the world a greater understanding of the risks and opportunities they face in ever-changing carbon trading, regulation and taxation.

Brexit, the ‘Trump factor’, an ambitious Phase IV reform package, the Chinese ETS launch in 2017 and the development of a global offsetting system for the aviation industry mean carbon risk is higher than ever. To successfully manage this risk companies need a thorough understanding of how carbon markets and regulation across the globe affect them and their competitors, Carbon Forward is designed to provide that understanding.

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.

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