EU governments will resume their near-daily spot EUA sales from Monday, with this year’s auction volumes, at 733.8 million, set to be around 100 million units more than in 2015 due to fewer EUAs being withheld under the bloc’s Backloading programme.
The 2016 auction schedule remains largely the same as previous years, with a group of 25 EU member states selling on Mondays, Tuesdays and Thursdays, and Germany on Fridays – all on German energy bourse EEX.
The UK will continue to hold its sales on London-based ICE Futures Europe exchange every second Wednesday.
According a Carbon Pulse analysis of the results of the more than 650 EUA auctions held since the start of the EU ETS’ third trading phase (2013-2020), the UK’s sales over the past two years have fetched the lowest prices relative to the other auction groupings.
That’s with the exception of Poland, whose auctions, also held on EEX, have typically been smaller and scheduled a bit more sporadically, but also always on a Wednesday.
The UK auctions have over 2013-2015 cleared on average between €0.04 and €0.09 below the annual mean of all the auctions. Weigh the prices against the number of allowances on offer and the results are the same.
Had the British government attained at least the average sale price across those three years, it would be sitting on an additional €15 million in its coffers.
Lower participation figures may also help explain the deeper discount, with the UK sales attracting around 15 participants per auction since ICE started hosting them, compared to around 17 or 18 for Germany and the EU-25.
Some traders have noted that the application process to participate in ICE’s auctions is more stringent compared to EEX, and that this is reflected in the lower bidder numbers, which have slid slightly every year since 2012.
Poland’s auction results may support this theory somewhat, as data shows that the country attracted higher bidder numbers than the UK in 2015, along with a €0.03 discount to the overall weighted average price (WAP), a cent smaller than the UK.
In contrast, an average 18.3 participants took part in the EU sales, and 16.9 in the German ones, and both groups enjoyed higher clearing prices relative to Poland and the UK.
Participants in EEX’s auctions are allowed to bid in any of the government sales, so it’s unclear why fewer decided to take a punt on Poland’s permits last year.
Until this year, many of the country’s previous auctions have been scheduled on Wednesday afternoons, whereas all other EUA auctions are held in the morning. As a result, several traders have admitted to Carbon Pulse that they have forgotten to participate in some Polish sales due to the irregular timetable.
In 2014, an average 17.7 bidders participated in Poland’s three auctions – that year’s highest level amongst the four groupings. The auctions were all held in Q1, before the sale quotas were adjusted for Backloading, and fetched a weighted average price (WAP) of €5.85, some €0.04 below the annual mean.
However, last year, at an average 15 participants per sale, fewer bidders partook in the Polish sales, which recorded a WAP of €7.58.
Combining the two years’ discounts, that’s nearly €1.7 million in potential revenues left on the table.
Notably, Poland’s auctions still notched the highest weighted average oversubscription rate at 3.48 in 2015, compared to 3.22 for the EU, 2.87 for Germany, and 2.27 for the UK.
In 2014? It was 5.46 for the EU, 4.84 for Germany, 2.91 for Poland, and 2.66 for the UK.
Despite selling the most allowances and holding the most frequent auctions, the EU-25 has managed to achieve the highest WAP of the four groupings over the past two years.
In addition, the EU sales, along with the UK’s, cleared at an average €0.01 below the spot EUA price on the secondary market at the end of each auction held since mid-February 2015, when Carbon Pulse started recording the figures.
In comparison, Germany’s sales cleared at a 2-cent discount, while Poland’s were more-or-less aligned.
The average number of allowances offered per sale in each of the groupings may also have played a role, with mean volumes varying by as much as 9% or 268,000 units last year, and by as much as 91% or 2.2 million EUAs in 2014.
This year, the size of each grouping’s average auction will see the smallest deviation – some 3% or 104,000 EUAs between the smallest and largest mean quotas.
With all other factors being seemingly equal or immaterial, it begs the question: do EU carbon buyers just dislike Wednesdays?
By Mike Szabo – firstname.lastname@example.org