EU carbon prices slipped 0.5% on Thursday to give back the previous session’s gains as the German government agreed on a scaled-down plan to cut coal-fired power plant use that would not force some utilities to buy extra EUAs as previously proposed.
Dec-15 EUAs ended down 4 cents to settle at €7.46 on ICE amid modest turnover of around 7.5 million.
The benchmark carbon contract opened at the day’s peak and traded in a narrow range of €7.42-7.50, slightly lower than the previous session’s €7.44-7.53.
While carbon was little changed, German forward power prices for 2018 delivery hit €31.75/MWh, its highest level since mid-May, as Berlin agreed on a mechanism to phase-out a handful of ageing lignite-fired power plants from 2017 to help meet a domestic emission target.
This, coupled with lower coal prices, pushed 2017 and 2018 German clean dark spreads to their highest for almost two weeks, theoretically boosting the financial incentive for utilities to sell electricity and buy carbon.
The market signal conflicted with fundamentals however, as Germany’s plan scraps an earlier proposal that would have given utilities the possibility to buy additional EUAs rather than close.
Instead, the government plans to put lignite-burning units on stand-by without any measure to counteract the resulting lower EUA demand.
“In the longer term it’s definitely slightly bearish for EUAs as lignite units would reduce production and consequently emissions,” said Stefan Feuchtinger, an analyst at ICIS-Tschach.
Meanwhile, the EU’s sale of 2.9 million spot EUAs cleared at market levels and was slightly over three times subscribed, close to June’s average daily subscription level for EEX sales.
The prospect of higher supply in the coming days is also weighing on the market, with next week’s EUA auction sales due to rise to a near-maximum 2015 level of 15 million, up 25% on this week’s volume.
By Ben Garside – firstname.lastname@example.org