Vattenfall clinches deal with EPH over massive EUA hedging book

Published 15:54 on April 28, 2016  /  Last updated at 21:14 on April 28, 2016  /  EMEA, EU ETS  /  No Comments

Vattenfall has agreed to transfer its large EU carbon allowance portfolio associated with its German lignite operations to new owner EPH, dispelling uncertainty over a hedging book estimated to be equivalent to around 8% of last year’s total ETS emissions.

Vattenfall has agreed to transfer its large EU carbon allowance portfolio associated with its German lignite operations to new owner EPH, dispelling uncertainty over a hedging book estimated to be equivalent to around 8% of last year’s total ETS emissions.

“We have made an arrangement now with the new owner. The majority of the hedges will be, through back-to-back transactions, bought by them,” said Vattenfall’s CFO Ingrid Bonde in a conference call on its Q1 results on Thursday, referring to the company’s power, coal, and carbon contract holdings.

Vattenfall and Czechia-based EPH last week announced that they had reached a deal over the sale of the lignite assets, with the Swedish-owned power utility’s hedging book, valued at around SEK 9 billion (€980 million), not being included in the transaction, which is expected to be finalised in August.

Today’s announcement appears to be a U-turn, as a Vattenfall spokesman last week told Carbon Pulse that no separate deal to sell those positions was being considered at the moment.

The transfer of the EUAs between the companies means there is not likely to be any impact on the market, which could have come from Vattenfall unwinding its positions or EPH buying carbon allowances to cover its new exposure.

Analysts at ICIS-Tschach Solutions had estimated that Vattenfall’s current EUA holdings could be as high as 150 million tonnes, big enough to decimate carbon prices if sold into the open market over a short space of time.

BUYING LAG

ICIS-Tschach analyst Vincent Ehrmann said that Vattenfall’s Q1 results indicated the company had kept up its normal hedging patterns to the end of March, but was unlikely to have the same buying appetite up to the completion of the sale to EPH.

“I also don’t think EPH will be doing any hedging for now, at least until the deal is finalised. As a result, the carbon market is likely to see a drop in the hedging volumes associated with these lignite assets until August.”

He added that more uncertainty is likely to follow as EPH has not up until now published hedging ratios for its generation assets.

In its results, Vattenfall, still Europe’s second largest emitter for now, sold more forward power in Q1 while hedging a slightly bigger proportion of it.

Vattenfall said it had hedged 96% of the current year’s expected generation in continental Europe, compared to 99% reported a year ago.

Looking ahead, it said it had hedged 86% of Y+1 power and 67% of Y+2, advancing on the 79% and 57% at the end of full year 2015 and 87% and 55% and end-2014.

The company’s total power sales rose 5.1% year-on-year to 56.1 TWh in Q1.

Over the quarter, its CO2 emissions rose 7.9% to 21.9 million tonnes despite a 0.8% dip in its thermal generation to 22.5 TWh, which indicates the company burned relatively more coal than cleaner gas.

By Ben Garside – ben@carbon-pulse.com

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