This week brings bearish potential with weak fundamentals and a return to auctioning – with 9,166,500 EUAs auctioned this week. Solid wind powered electricity generation and continued mild temperature forecasts will reduce fossil fuelled power generation EUA demand. Looking at power generation for delivery in 2026, gas prices are low enough that fuel switching appears possible again – which could also contribute to reducing some EUA hedging demand. Meanwhile the prospects of recession grow for industry, amidst talk of a more difficult year than last year. At the time of writing on Monday morning however, EUAs have bounced off the €77.50 technical support level and moved up above €79.00, having sat around that level for the last three working days. A bounce off the technical support on Monday may be the product of pent up hedging demand or volatility associated with changing hedging profiles for power generators – wider bearish fundamentals could take hold as the week goes on.

  • Political news less relevant than fundamentals this week: there is a political meeting by the ENVI group within European Parliament on 12 January but this is reporting back on the Fit for 55 negotiations – and should not contain any new information that could move the market. Neutral 
  • Weather forecasts remain for mild temperatures, having sent gas demand to seasonal record lows. Central European temperatures are 5-8 degrees celsius above the seasonal average. Wind powered electricity generation also looks strong. Over 40GW French nuclear capacity is back online following fuel saving shutdowns – Bearish
  • Fuel Switching re-incentivised? Some commentators have suggested that the price drop is partly driven by fuel switching from the least efficient of coal fired power plants to the most efficient of gas fired power plants. ICIS show that Y+3 power production would be possible now using natural gas fired power plants. This could have an impact amounting to about 10% of EUAs required for power generation in 2026, judging by historical major utility hedging ratios three years in advance. Bearish – but not as bearish as if power generation spreads in 2023 allowed for fuel switching.
  • Volatility to ensue from fuel switch? If we do hit gas and coal prices that incentivise switching from coal to gas, a tight global gas market could mean that uptick in demand sends gas prices higher and rules out fuel switch – thereby reviving EUA demand. This could mean buying support for EUAs, which might have something to do with the resistance we’re seeing at €77.50. That could mean a neutral or bullish price impact.
  • Pent up buying demand to give way to bearish pressure? We might be seeing some buying as we return from holidays – the Monday auction was well subscribed with bidding amounting to over 5 million EUAs vs. the 2.4 million auction size. More auctions over the course of the week could add more bearish pressure as we return to more normal trading.
  • Recession potential: some industrial EUA buyers are commenting that 2023 will be a tougher year than 2022. If global gas markets remain tight through 2023, which is likely, the stress could contribute to recessionary pressure. December 2022 Eurozone inflation was at 9.2% vs. November at 10.1% // The IMF in October predicted that global growth would fall from 3.2% in 2022 to 2.7% in 2023, with a 25% chance of growth under 2%. Bearish 


Outlook: bearish

  • Indicative EUA Price: €80.50
  • 2022 Average EUA Price: €81.21
  • January Month to date average EUA Price: €80.76



1 – Dec23 EUA price chart 2- Fuel switching 2023, 2026 vs. EUA price – ICIS

Chart shows the level EUAs must reach in order to incentivise switch from coal to gas fired power – note grey line for 2026 dips under blue line for EUA


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