EU carbon turned upwards on Friday as higher energy prices helped push EUAs back into a long-term upward sloping channel and to a slight week-on-week gain.
The Dec-15 EUAs ended up 14 cents at €7.36, near the top of the day’s €7.18-7.37 range on ICE, and a 2 cent increase on the previous Friday’s settlement.
Traders said gains in German power, underpinned by higher coal and gas prices, helped lift carbon above the €7.24 level marking the bottom of a trading corridor, drawing further upward momentum.
Prices had kept within the roughly 60-cent trading channel since a mid-March low of €6.28, but slipped below it on Tuesday and then settled at €7.21 – their lowest settlement in a month – on Wednesday.
Cal-18 baseload German power prices rose 18 cents to €31.50/MWh on EEX, continuing their revival since flirting with €31.00/MWh several times in the past few weeks.
Meanwhile, Germany’s state secretary for energy Rainer Baake told the Berlin Conference on Energy and Electricity Economics that his government had struck a deal with 11 neighbouring countries to ban caps on wholesale power prices, Clean Energy Wire reported.
Such a move would benefit utilities and is aimed at retaining capacity from thermal plants that may only seek to operate at times of peak demand.
Baake also said his government had agreed to stick to its 2020 emission reduction target, but had not yet agreed whether to stick to a plan to force ageing power plants to shut down or buy additional EUAs for exceeding prescribed CO2 limits.
The benchmark carbon contract was also boosted on Friday following Germany’s auction of 3.198 million spot EUAs, a sale that was almost three times oversubscribed.
It cleared one cent below market but front-year future prices gained 5 cents in the minutes following the auction’s end.
Next week’s auctions are scheduled to inject just 9 million EUAs into the market, down from 12.2 million this week. Sales will be held on Monday, Tuesday and Friday on EEX, with Thursday a public holiday in Germany.
Volume on the Dec-15 EUAs was light at around 11 million units on Friday, capping a quiet week for turnover that was hampered by the absence of many dealers from their desks while attending the Carbon Expo in Barcelona.
| Implied EUA carry trade annual returns | German clean dark spreads | |||||||
| Dec-15 | Dec-16 | Dec-17 | Dec-18 | Cal Yr | Price | Wk chg | ||
| Spot | 1.005% | 1.047% | 1.164% | 1.470% | 2016 | €3.88/MWh | -0.11 | |
| Dec-15 | 1.087% | 1.215% | 1.555% | 2017 | €3.68/MWh | +0.05 | ||
| Dec-16 | 1.344% | 1.803% | 2018 | €3.18/MWh | +0.07 | |||
| Dec-17 | 2.255% | (based on 36% eff. factor) | ||||||
| (does not include transaction costs) | ||||||||
By Ben Garside – ben@carbon-pulse.com
