More gains seem likely for UKAs this week:

  • Storm conditions are set to give way to milder weather from Tuesday. Given the UK has largely phased out coal power, the UK cannot easily reduce emissions by turning off coal and turning on gas. We’d therefore anticipate gas fired power to add some demand for UKAs this week. See charts 2 and 3 for a comparison of electricity generation sources before and during the storms.
  • Even where renewable displace fossil fuels, would-be sellers may prefer to hold onto their UKAs given fresh UKA supply at auction only happens every two weeks, and there is little liquidity to allow for buying larger volumes on the secondary market.
  • There is a UKA auction this week on Wednesday. We could see the market be sucked nearer to the EUA price by those swapping EUAs to UKAs, but again, it’s hard to see where UKA sellers appear from to prompt a price drop.
  • Free allocation to be sent on 28 February: it remains to be seen if this might bring some sellers out of the woodwork. Companies will conceivably be able to borrow 2022 free allocation of UKAs for 2021 emissions, thereby avoiding buying at these high prices.

UK ETS Outlook: bullish

Indicative UKA price: £87.75

YTD average UKA price: £79.85

MTD average UKA price: £85.08

1. UKA Dec22 Price Chart 2. Snapshot of UK energy generation 7/2 3. Snapshot of UK energy generation 21/2



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