UKAs last week saw price movements limited as the cost containment mechanism is to be triggered. The UK auction sold at £65.80, or approximately €77.37 vs. the EUA closing price last Wednesday of €76.64 – meaning a small price differential only, attracting utilities swapping UKAs to EUAs. That kept UKA prices down and we anticipate no major price increases beyond current levels with government intervention coming, limited coal power to switch on and the potential for UK power demand to be satisfied by electricity imports from the continent, as well as industrial shutdowns due to high gas prices. Demand should continue however from the UKs gas and coal fired power producers while reports have emerged of investment funds adding UKAs to their portfolios. 

UK ETS Outlook: neutral – bullish

  • UKAs auction sells at £65.80 – UKAs sold at a discount to the secondary market of approximately £7.20 last week – buying demand at auction is heavily driven by utilities swapping EUAs for UKAs, without which we wouldn’t be at high prices as we are now. 
  • Fundamental demand likely to be strong: more storm conditions with the onset of Storm Barra from Tuesday to hit the UK this week will imply more fossil fuel burn, though wind generation could displace some of this. Risk remains to the upside on utility buying demand to cover their power generation. 
  • Market not short and prospect of government intervention to keep price gains limited: the UK ETS would be running a surplus if it were not for the backlog of EUAs that utilities are swapping to UKAs at auction every second week. Additional interconnector capacity to import electricity from Continental Europe also implies drops in emissions – or at least their relocation to the continent and the EU ETS. Additional auction supply early next year will soothe the market while the utility backlog is cleared. 
  • More speculator involvement to come? Kraneshares KRBN fund now includes UKAs – more interest in exposure to the UK carbon market may build over time, tightening the market so far to the tune of about 761,000 UKAs.
  • Indicative price: £70

For more details on market outlook & protecting against your carbon risk, please email or call +31 20 522 0292

See also our EU ETS market update here