After a short period of correction, this week (Thursday to Thursday) saw a 5.4% gain with the EUA Dec-23 contract again set to test the €100/t level. Friday’s session continued the downward trend, but at a much lower pace than the previous sessions. Monday saw some consolidation before the market participants saw an uptick in prices. Market turned optimistic when the selling pressure softened, and the correction was relatively short-lived. On Thursday the market traded close to €100/t in early trading but retreated sharply when the EU common EUA auction cleared with a meager 1.29 bid-to-cover ratio, the lowest so far this year and way below the yearly average ratio at 2.02. The EUA bellwether price was however supported by French nuclear problems.

Next week, a total supply of 11.8 million EUAs will be offered on governmental auctions. This is some 2.7 million more than the previous week as the fortnightly Polish auction will take place on Wednesday. With the compliance for 2022 coming closer we should see continued steady buying interest in auctions.

The latest weather forecast suggests milder and more windier conditions for next week. Wind power production is expected to be twice the normal volume early next week, before dropping off Wednesday and Thursday, after which it should return to normal levels for the reminder of the two-week period. Temperatures are forecasted several degrees above normal next week. Lower heating demand and increased wind power production could limit the amount of fossil fuel power demand and could weigh on the carbon market.

European gas market has continued to weaken last week as ample supply and healthy gas storages has kept market under pressure. Europe has seen solid inflow of LNG to Europe and prospect of more US supply coming to the market after US Freeport will return to full capacity after the third and last liquefaction train received the regulatory approval has kept prices under pressure. However, prices received some support from the French strike that blocked LNG terminals and French power production. The CO2 switching price for 39% efficient coal plants to 50% efficient gas power plants is now at €103.4/MWh and incentivises gas power plants over coal power plants. We expect favorable the conditions fuel switching conditions to continue next week. Less emission intensive power generation is a bearish factor the EUA price. 

One of the main drivers could be on the French nuclear situation. The French nuclear safety authority ASN said that the corrosion causing the cracks discovered on EDF’s Penly 1 and Penly 2 nuclear reactors this week could be present at all French nuclear reactors. EDF will most likely need to present a new inspection plan, and the market is worried that this issue could lead to more downtime and lower the French availability in 2023. Also, the ongoing nationwide strike is affecting 5.5 GW nuclear capacity and EDF has said the production is likely to be reduced until the end of the strike. There is also another company-wide 24-hour strike at EDF planned from the evening 14 March. A tighter French nuclear situation could lead to more fuel-burn and thus be supportive for fuels and carbon.

The EUA Mar-23 option expiry is approaching and at the current price (€99/t) level, 11 million call options are in the money. In close proximity, the largest call option is at €100/t with open interest at 6.9 million. The €100/t leg has seen a decline over the last week. The call option at €110/t has seen a uptick and is now at 6.5 million. Positioning around the March option expiry position could add some volatility to the market over the next week with levels.

The EUA Dec-23 contract opened the week at €92.36/t and after failed attempt to break above the €95/t level, EUA prices eased to close not far away from the open. On Tuesday (7 Mar) the front-Dec carbon contract broke above the December’s high at €94.04/t, which fuelled further gains and sent EUA prices above the €95/t level, leaving a long-bodied candlestick. The bullish momentum continued on Wednesday (8 Mar) and Thursday (9 Mar) with the EUA Dec-23 contract rallying towards the €100/t level. On Friday (10 Mar) EUA prices made a first attempt at €100/t level meeting resistance at €100.20/t. Currently the font-year carbon contract is trading in a narrow range around the €99.50/t level.

The discontinuation of the bullish-trend observed on Friday (3 March) did not lead to a bearish reversal. Instead the EUA Dec-23 contract returned on an upward path posting four bullish candlesticks in a row. This could point towards a continuation of the bullish trend. The MACD is also close to post a bullish crossover. However, the bodies of the bullish candlesticks are getting smaller and with today’s ‘doji’ candlestick a further upward direction might be exhausted. Also, the €100/t level could provide a strong resistance and limit the bullishness. Overall, we provide a neutral technical outlook this week.

The draft legislative proposal for the power market reform was leaked on 7 March. The proposal consists of two parts; one addressing market design, the other market manipulation protection. The legislation will amend the Regulation on the internal market for electricity (2019/943), the Directive on renewable energy (2018/2001), and the Regulation on ACER (2019/942). Aimed at protecting consumers from extreme prices while also supporting competitiveness and the uptake of renewables, the reform aims to create a buffer between short-term markets and electricity bills paid by consumer, as well as incentivizing long-term contracts. The major point of contention in the proposal is the role of contracts for difference (CfDs) in financing new renewable energy projects. France and Spain, supportive of these longer-term contracts, have been at odds with a bloc of countries, headed by Germany, that are opposed to any deep interventionin the power market, at least on this side of the 2024 European elections.

Through the past week, industrial policy has been center-stage as elements of 

 have crystallized. The proposals for a Net-Zero Industry Act and the Critical Raw Materials Act both were leaked (in addition to the power market reform discussed above). Additionally, the Commission has adjusted state aid rules through the 

Temporary Crisis and Transition Framework

 and an amended General Block Exemption Regulation, providing simplicity and flexibility to member states to provide support for sustainable industry. The Green Deal Industrial Plan is the response to the US Inflation Reduction Act. For the EU ETS, while not having an immediate market impact, the shifting framework for support towards greening industry will likely have long-term impacts on industrial abatement and European competitiveness.

In the morning of 10 March, lawmakers from the Council and Parliament came to an agreement on the Energy Efficiency Directive. Striking a balance between the Parliamentary goal of 14.5% and the Council’s 9%, the final deal set the binding energy consumption reduction target at 11.7% by 2030 compared to 2020. The target is set to be achieved through gradually increasing energy savings targets and specific reductions from the public sector. The agreement constitutes a binding final energy consumption target on EU level with non-binding national contributions and without binding targets for primary energy consumption.

For next week, there are two key policy events to watch out for. On 16 March, environment ministers will meet to discuss two legislative files. The first task will be to agree on the Council’s general approach to revise the Industrial Emissions Directive. They will also begin discussions on the European Commission’s proposal for a carbon removal certification framework (CRCF).Earlier this week, the German environmental agency released a 

 criticizing the CRCF text for ambiguity. We can expect many of these issues to be raised this week. See the agenda for the Environment Council meeting 

The European Parliament will meet in plenary form 13 to 16 March. Most relevant to carbon market participants will be the 13 March debate on the Effort Sharing Regulation, Land Use, Land-Use Change and Forestry (LULUCF), and the Revision of the MSR for the EU Emissions Trading System. Each of these files have been through trilogue negotiations and are currently awaiting adoption. On Tuesday (14 March), voting for final approval will take place. See the plenary agenda 

Overall, while the legislative train pushes ahead on files important to the EU ETS, policy as a driver is set to be neutral for the week ahead.

News

A new beginning for financial players in China's carbon markets?  

ETS expansion to maritime will aggravate EUA scarcity

Commission proposal to extend gas reduction measures

Union database – March update to timelines

March 2023 HUPX Pan-European auction 

2nd Italian Auction in 2023 - All prices within the 6-7 EUR corridor

Week 11: KAU22 rises while reporting due date approaches

Week 11: RGGI V23 Future Dec-23 contract prices drop as low Q1 auction price is published 

GO Week 11 Overview - The 2022 vintage loses ground

Week 11: The benchmark contract remains about the USD 30.00/t threshold this week among regulatory updates and the failure of Silicon Valley Bank

Week 11: EUAs slip on financial market uncertainty, weak auctions

Week 11: VCM has the lowest volumes of future standardized contracts since the beginning of the year

EAC Market Report - In The Midst Of A Bullish Wave

A platform with real-time GO data and insights, reporting prices and market fundamentals for Wind, Hydro, Solar, Biomass, Biomethane and RGGOs. 

Our community offers access to webinars, discussions and updates from industry leading experts and analysts. 

The EUA front-Dec contract has seen strong performance lately and is flirting with the €100/t level and we could also see a test of the all-time high at €101.95/t. However, without large changes to the fundamental picture we don’t think a break will be sustained above this level. We see mixed signals this for the week ahead with fuel switching and more renewables possibly weighing on the market and worries of the French nuclear situation possibly providing support. The technical and policy signals are neutral and overall, we have a sideways view for the EUA Dec-23 contract.

Our Platform gives you unfettered access to price benchmarking, analytics, new and insights covering the green certificates markets. 

Register for a trial now and someone from our team will be in touch with you to learn more about your involvement in the markets and to answer any questions you may have.