The week ahead looks set to stay relatively uneventful as the market continues to wait on news from political deliberations on Fit for 55 and REPower EU. Leaks from the political process could prompt volatility, as could wider geopolitical disruptions, but as a rule not much news is expected that would move the market, with EUA demand from coal fired power still priced in and mild weather across much of Europe keeping energy demand similar to previous weeks. On 25 October more talks on emergency measures for gas supplies and prices are set to be discussed, but these probably won’t have any impact on EUA fundamentals, and nor will the extension of German nuclear capacity have a major impact on the EUA price. Taking a technical look at the chart however, as noted last week, volatility is dropping. This can mean that a breakout could be coming, though it is hard to see what would prompt that in short-term from a fundamental perspective. Finally, it is worth noting that speculators are building a net short position, which could suggest more expectation of lower prices rather than higher prices.

  • 12.5 million EUAs are to be sold this week, a 3.1 million increase week on week. 
  • REPower EU uncertainty: questions still remain on how much money the EU will seek to raise, when the sales will begin and at what reference price per EUA. The original idea had suggested 250 million EUAs were to be sold assuming a roughly 80 euro price point – now we’re trading around 67 Euros…
  • REPower EU budget could be increased, but EU ETS unlikely to be a source of additional funding: ICIS argue that organising to sell even more EUAs would hold up the legislative process too much.
  • Emergency measures on gas supplies, but coal fired power to keep EUA demand strong: see proposed measures here. Coal fired power remains favoured over natural gas power generation (EUAs would need to move above 200 euros to change that), so EUA demand should remain relatively strong even with controls on gas prices. Strong coal demand and bearish price action for gas can mean a degree of stability on which EUA prices could build.
  • German, French nuclear power remains much the same: French nuclear capacity remains diminished as strikes reduce nuclear capacity availability, Germany has extended the lifespan of 4.1 GW of nuclear power plants by 3 months, from 31 December 2022 to April 2023. This was in line with expectations so won’t bother EUA prices.
  • Parliament adopts a position on Fuel EU maritime: this will allow trilogue discussions between the EU institutions to go ahead, so we might get some news on the inclusion of the maritime sector in the EU ETS in coming weeks or months. The Parliament’s position is stronger than the Council’s, so could have a long term bearish impact (in 2030s) relative to previous expectations as more low carbon fuels will result in less EUA demand.
  • Speculators hold a net short position on EUAs: evidently there is not much bullish sentiment in the market at present with speculator net short holdings increasing from -6.6 million EUAs to -7.15 million EUAs according to the latest ICE commitment of traders report, issued on 14 October.
  • Technicals: EUAs continue to trade near the recent lows. The daily chart shows decreasing volatility, which can be a sign of a breakout to come (see chart 1). Traded volumes are low compared with historical interest in the market. 
R3: 73.83
R2: 72.50
R1: 69.50
S1: 66.50
S2: 65.40
S3: 64.30

Outlook: neutral

  • Indicative EUA Price: €68.03
  • YTD Average EUA Price: €81.22
  • MTD average EUA Price: €67.63

 

Charts

1 – Dec22 EUA price chart 2 – ICIS Generation Spreads

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