This week’s outlook is bullish. UKAs hit 88 pounds last week, moving in correlation with EUAs. This week brings the fortnightly UKA auction on Wednesday which could serve to keep the two markets moving together. With a few relatively bearish signals hitting EUAs, UKAs might take a pause here, but no prospect of intervention in the market and the onset of compliance season keep the risk to the upside. Coal power is still firmly priced into British power generation and gas is at present making up a large proportion of UK electricity generation.

Indicative UKA price: £87.15

UK ETS Outlook: bullish

Compliance season: many compliance buyers will have to come to market over the next few months with relatively few UKAs on offer. There is a good chance some buyers will choose to instead use their free allocation of UKAs for 2022 however.

Cost containment: the threshold for intervention moves up to £75.76 on average for February, then £80.90 and then £87.99 for March and April respectively. UKA prices have not met the threshold to trigger the cost containment mechanism in either March or April, and the market awaits the government announcement of the May trigger price.

Fossil fuel generation strong: we anticipate UKA demand to remain this week with gas power making up a large proportion of power generation, though the weather forecast has improved compared to what was forecast in mid January. The UK effectively has no short-term way to balance supply and demand, with a large portion of supply taken up by those swapping EUA to UKA.




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