This week’s outlook is neutral-bearish. UKAs hit 100 euros or 84.70 pounds last week as continued utility interest in swapping EUAs combines with wintery weather, with Storm Corrie the latest bout of severe weather to hit the UK. Power outages are hitting the Northern UK and substantial renewable generation from the storm conditions is at present displacing fossil fuel use. Milder weather is expected to upset previous cold forecasts later in the week, giving a bearish tone to the market. Nonetheless with UKAs squeezed to new highs, heading into the compliance period and no new supply of UKAs coming until next week, price losses are likely to be limited and there are apparently buyers out there to keep prices elevated.
Indicative UKA price: £84.50
UK ETS Outlook: neutral-bearish
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.
Strong wind generation, power outages: many homes have lost power due to the stormy weather, while strong wind generation is displacing fossil fuel burn.
Milder weather forecast: contrary to previous forecasts, a low pressure system is expected to hit Europe soon, turning energy markets relatively more bearish than had been expected last week.
Low liquidity: we believe most UKAs are bought at auction by utilities who wish to sell EUAs they’d previously bought for forward power generation and own UKAs. That has left only thin volumes on the secondary market and made the UK ETS a seller’s market.