This weeks outlook is neutral to bearish. The market looks set to move forward depending on 1) the energy crisis and reductions to power and gas demand and 2) REPower EU’s possible sale of €20bn worth of EUAs – probably the largest market moving factors this week. Demand destruction by heavy industry due to high energy prices gives the market a bearish tone. Though Europe’s gas storage is filling up ahead of schedule, it also mandates a 15% cut to gas usage, which also sets a bearish tone. The EU’s intervention in energy prices could boost demand and reverse some of this bearishness, with an announcement set for Wednesday 14 September. If a gas price cap is imposed, Russian gas flows may stop altogether, which could mean more bearish trading for EUAs. REPower EU remains an important influence on EUA prices with the European Parliament poised to back the proposal to raise €20 billion euros from EUA sales, though differences within Parliament on how to do this exactly remain. More detail below. A vote is to be held on 3 October, we may see some hints of agreement in Parliament before then.

  • 12.5 million EUAs will be sold this week at auction. Auction volumes start to build now, for three weeks.  
  • 14 September – EU electricity market intervention announcement: On Wednesday EU Energy ministers will discuss a response to lessen the burden on European power users. This could prompt volatility. Much on an intervention remains uncertain at present. Topics to be addressed on Wednesday:
    • target for reducing electricity use during peak hours (bearish EUA impact, likely at least partially priced in now)
    • capping revenues from non-gas power production at €200/MWh (could hit clean dark spreads – could be bearish for EUAs if the cap does cover coal / lignite generation though boosted demand through lower prices could reverse this effect)
    • a “solidarity contribution” from oil and gas companies
    • a cap on gas / LNG prices isn’t ruled out, though Russia threatens to cut off all gas supplies in that event.
  • Industrial demand destruction: shutdowns or reductions to production for fertiliser and aluminium producers set a bearish tone for EUAs. The likes of Achema, Aluminium Dunkerque and Fertiberia have all announced or extended outages.
  • REPower EU discussions in European Parliament: the centre-right EPP (largest party in Parliament) is advocating a quick sale over one year. Liberal leaning parties reject the proposal to use EUAs from the MSR and instead divert revenues from existing EUA sales. The EPP’s Peter Liese, the lead rapporteur from the environment committee argues for MSR sales over one year, with cuts to supply over 2027-30 to neutralise the fundamental impact of the EUA sales. Substantial sales of EUAs from the MSR would be bearish for the EUA price, but some of that potential should already be priced in, so a shift for the proposal away from MSR could be moderately bullish for EUAs.
  • Emissions remain high, with coal firmly priced in as long as we wait on government intervention.

Auction timetable:

Week 36 Week 37 Week 38 Week 39
# EUAs 7,482,500

12,494,500

 

10,323,000 12,494,500

Outlook: bearish

 

  • Indicative EUA Price: €66.15
  • YTD Average EUA Price: €83.34
  • MTD average EUA Price: €72.19

 

Charts

1 – Dec22 EUA price chart

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