The head of German utility EON said Wednesday that the EU ETS can slowly regain momentum if lawmakers agree to start the MSR earlier than 2021 with it quickly filled with backloaded and unallocated EUAs.
Johannes Teyssen was speaking at EON’s annual results, where three years earlier he said “the ETS is bust, it’s dead” with EUA prices trading around €9, or some €2 above current levels.
On Wednesday he said EU leaders agreeing on a 2030 emissions cut target and EU Parliament’s position on the MSR proposal were beginning to turn the beleaguered cap-and-trade system around.
“We need the MSR quickly to get the market going. Right from the start, we have to put a lot in: 900 million backloaded allowances have to go directly in … and several hundred million EUAs right from the start,” he said.
“With all of that together, slowly we believe the CO2 market will regain momentum.”
He added that this would require prices at a similar level to that of the UK’s carbon floor fee, which gives British power generators an overall CO2 price signal of €15-20.
CO2 OUTPUT DOWN
In its results statement, EON said its CO2 output from plants regulated under the EU ETS fell 21% year-on-year to 62.6 million tonnes in 2014 from 79 million in 2013.
It said the emissions drop outpaced a 14% decline in its power generation from plants it owns, which fell to 125.5 TWh from 146.7 TWh.
This was due to relatively higher output from emission-free nuclear and renewable sources, which cut the carbon intensity of EON’s output to 0.41t/MWh compared to 0.44 a year earlier.
The company traded 458 million carbon allowances last year, 2% below the 469 million it traded in 2013.
HEDGING RATE DIPS
EON only reports its hedging rates for outright generation, ie. its nuclear and hydroelectric output that is less impacted by short term changes in fuel and carbon costs.
It reported a slight decline in its hedging rates at 40% for two years ahead in ‘Europe’ compared to 50% a year earlier, though it maintained its 100% hedging rate for the current year and one year ahead.
EON’s ‘Nordic’ hedging rates declined more markedly, with current year and one year ahead rates falling to 80% from 100%, and two years ahead down to 20% from 40%.
German rivals RWE and Vattenfall have also reported slight declines in hedging rates over 2014 amid thinner margins for thermal generation, which could affect overall EUA buying in the market.
Despite the drop, EON repeated that its long term strategy was to increase the amount of its power production that is hedged forward.
“Our hedging practices will, over time, serve to increase the hedge rate of subsequent years,” it said.
EON plans to spin-off its thermal power assets into a separate company in 2016.
By Ben Garside – ben@carbon-pulse.com
