POLL: Analysts raise EU carbon price estimates, big jump for 2018-2020

Published 18:20 on October 9, 2015  /  Last updated at 08:10 on October 16, 2015  /  EMEA, EU ETS

Analysts have increased their estimates for EU carbon prices, modestly raising their forecasts for end-2015 and 2016 compared to the last Carbon Pulse poll while boosting, on average, their expectations for EUAs by at least 9% for the final four years of Phase 3 (2013-2020).

Analysts have increased their estimates for EU carbon prices, modestly raising their forecasts for end-2015 and 2016 compared to the last Carbon Pulse poll while boosting, on average, their expectations for EUAs by at least 9% for the final four years of Phase 3 (2013-2020).

Front-year EU Allowance futures will end 2015 at €8.60, according to the mean estimate of 11 forecasts submitted by analysts.

That’s 3% above Friday’s settlement price of €8.35 on ICE Futures Europe, and some 1.2% above the analysts’ previous average forecast of €8.50 recorded in a July 3 poll.

The analysts this week predicted that prices would then rise to €9.35 by 2016’s midpoint, before ending next year at €10.00, some 10 cents or 1% above their previous mean view.

They cited less industrial selling and favourable clean dark spreads as the main bullish factors, but warned that falling European gas prices could exert bearish pressure on EUAs as utilities with fuel-switching capabilities seek to burn the cleaner fuel instead of coal.

From 2017 onward, most of the analysts were more bullish compared to three months ago.

The mean estimate for end-2017 prices was €12.05 – a 9% increase on July’s poll.

The analysts raised their longer-term forecasts by even larger margins; They predicted prices would end 2018 at €13.35 (up 17.1% from the previous forecast), end 2019 at €15.95 (up 24.6%), and end 2020 at €19.05 (up 13.1%).

The Dec-15 EUAs averaged €8.00 in Q3 and ended September at €8.15, which was roughly in line with the analysts’ mean estimate in the previous poll.

Below are selected comments from the analysts supporting their latest price forecasts:

Marcus Ferdinand, Thomson Reuters Point Carbon: “We think that increased confidence in the stability of the regulatory set-up will continue to be an underlying supportive factor for EUA prices going forward, and that the role of policy events as major factor for short-term price volatility will significantly decrease.”

“We expect the market to be stronger influenced by non-political fundamental factors. Towards the end of 2015, we expect EUA prices to be driven by a favourable clean dark spread and utility hedging demand … (And) while the persistent bearishness in the wider energy complex could spill over to carbon on a temporary basis, we think that lower coal prices could actually help the clean dark spread to remain at favourable levels, hence supporting coal burn and corresponding EUA hedging demand.”

“We expect that utility hedging demand will continue to support the EUA price for the rest of 2015. Hedging activity in 2015 will likely rise on 2014 levels. This view is justified by the fact that 2014’s hedging activity was exceptionally low compared to historical averages. We think this may have been driven partially by utilities’ expectations for a rebound in power prices in relation to Germany’s climate change levy discussions. Our view is confirmed by our observations for the first two quarters of 2015, when utility hedging demand rose compared to the same quarters last year. We expect this trend to continue and presume that hedging demand will rise year-on-year for the two remaining quarters in 2015.”

“One overarching driver for this will likely be the continued overcapacity in the power market. Our fundamental power model estimates a near €2/MWh drop in the German power prices from 2015 to 2017. Such bearish outlook for the power price may incentivise utilities to lock in electricity sales sooner.”

Espen Andreassen, Markedskraft: “We observe a weak industrial output so far this year, and quite weak power consumption growth from the very mild previous year. Although we acknowledge low oil prices will have a stimulating effect on European power and carbon-intensive industries, we expect industrial output growth in 2016 to be rather muted by the effects of decreased growth in the Chinese economy, weakened outlooks for the European car industry and slowly-growing construction sectors.”

Jonas Rooze, BNEF: “We expect the need for abatement in the form of fuel-switching to drive prices up to €30 by 2020, though dropping gas prices present downside risk to this forecast.”

Matteo Mazzoni, Nomisma Energia: “Compared to our latest forecasts, the mid-to-long-term outlook is now rosier. The progressive drop out of industries from the market is gradually leaving (prices) in the hands of the buy side, which will likely need more EUAs this year than previously predicted due to higher fossil generation compared to 2014 … The market is slowly moving upwards, and it’s likely to keep doing that for the mid-term.”

Philipp Ruf, ICIS Tschach: “(We anticipate a) stronger Q4 2015 as Q3 was underbought according to our analysis. (But we forecast a) slower H1 2016, especially Q1 due to regular selling of free allocation by industrials after they have received it.”

Bernadett Papp, Vertis: “Declining coal prices and the outlook for regulatory changes will support the price, but the declining trend in gas and power prices might limit gains.”

Anatoly Stolbov, Virtuse: “We think the price will stay in uptrend along with a decrease of market surplus. The MSR only starts in 2019, and for now the market is going to be supported by the speculative behaviour of participants. Industrials are slowing down on selling their surplus in anticipation of higher prices later or to keep inventories against upcoming deficits. In other words, the price is going to be supported by bullish expectations. We also have one more year of reduced auctions due to Backloading. With even modest industrial production growth, and stable economies and financial markets, we don’t see much reason for the EUA price to give up the uptrend established at the beginning of 2014.”

Below is a table of the 11 analysts’ individual forecasts for front-year EUA prices, all of which are reported in €.

End 2015 H1 2016 End 2016 End 2017 End 2018 End 2019 End 2020
BNEF 9.00 N/A N/A 14.00 N/A N/A 30.00
Commerzbank 9.00 9.00 9.50 N/A N/A N/A N/A
Consus 8.25 8.40 8.40 8.80 9.40 11.70 12.10
Energy Aspects 8.50 9.25 10.50 12.00 14.00 18.00 21.00
ICIS-Tschach 9.50 10.50 12.70 15.90 19.20 27.20 29.50
Markedskraft 7.50 N/A 8.50 N/A N/A N/A N/A
Nomisma Energia 8.10 8.85 9.20 9.90 11.20 12.50 14.60
Point Carbon 8.90 10.80 11.80 14.90 17.10 18.00 19.00
Societe Generale 8.81 8.90 9.00 9.23 9.52 9.85 10.22
Vertis 8.50 9.30 10.30 N/A N/A N/A N/A
Virtuse 8.70 9.05 10.10 11.50 13.00 14.40 15.80
Average 8.60 9.35 10.00 12.05 13.35 15.95 19.05
Median 8.70 9.05 9.80 11.75 13.00 14.40 17.40
Previous poll 8.50 N/A 9.90 11.05 11.40 12.80 16.85
% change +1.2% N/A +1.0% +9.0% +17.1% +24.6% +13.1%


By Mike Szabo – mike@carbon-pulse.com