EU carbon prices held above €7 for a third day on Wednesday as optimism over an MSR deal outweighed bearish signals from the power market.
The Dec-15 EUA futures ended up 1 cent at €7.13 on relatively thin turnover of 9 million EUAs and at the upper end of the day’s narrow €7.05-7.16 trading range.
Carbon climbed above €7 on Monday as details emerged of Latvia’s fresh attempt to broker an MSR compromise by strengthening the text.
Governments remain divided on the proposal following talks on Tuesday but the prospect of strengthening the MSR further by agreeing it to start earlier than 2021 remains a possibility, two sources close the process said on Wednesday.
Earlier in the session, the EU auctioned 1.49 million EUAAs at €6.75, some 37 cents below where the Dec-15 EUAs were trading at the time.
The discount for the more thinly-traded aviation allowances has increased over the past month, with two prior sales clearing at 30 cents and 17 cents below the front-year EUAs.
“The demand some expected from airlines and other compliance players ahead of the surrender deadline hasn’t really materialised, but I take heart from the fact EUAs have stayed above €7,” said one trader, referring to the end-April cut-off for installations to hand in allowances for their 2014 emissions and airlines to surrender units to cover 2013 and 2014 output.
German clean dark spreads came under pressure as calendar 2017 and 2018 German baseload power prices, trading on EEX, slipped by €0.16 and €0.19 respectively, halting five straight days of rising spreads that benefited power generators and provided a bullish signal for EUAs.
“Dark spreads had been improving but there’d been no reaction from utilities whatsoever,” the trader added.
Analysts have suggested that ongoing uncertainties over a German government proposal to levy fines on some of the country’s oldest power producers from 2017 could make utilities more cautious about selling large amounts of electricity forward.
By Ben Garside – firstname.lastname@example.org