Despite the gloomy economic outlook and increasing nuclear output, we forecast that the EUA price will remain stable in the next four weeks, supported by further gas-to-coal switching amid gas supply cuts.
Gas squeeze prompts further gas-to-coal switching
Amid the gas crisis, Europe is turning to more coal for power generation. The key driving factor for gas-to-coal shifting is limited gas supply, although gas prices have remained elevated and volatile despite easing after record-highs over the summer. Further gas-to-coal shifting due to the gas supply shortage will lift EUA demand by ~1%.
France to increase nuclear generation in October
France will start putting their reactors online after they have been inactive due to scheduled maintenance for most of the year. The move will ease the tight energy market this autumn, as one of the EU’s major economies will be less dependent on fossil fuels. The phased restarts, adding ~4 GW next month, will reduce demand for fossil fuel-based power, which cuts EUA demand by ~2%.
Weak output will depress EUA industrial demand
EU industrial activity has been weak in the past month and CRU expects further weakness in the upcoming month. Besides the weakening metal markets, the fertiliser sector was also hit hard, as it saw its ammonia production capacity curtailed up to 55%, based on CRU estimates. We forecast industrial activity will continue to weaken in October, given weak end-user demand. This will further decrease EUA demand and negatively impact the EUA price.
MSR proposal receives pushback
On 9 September 2022, the largest political group in the European Parliament proposed to accelerate the sale of the allowances from the market stability reserve (MSR) to help energy generation and industry combat rising energy prices. The proposal has since received pushback from several political groups within the European Parliament. CRU expects that the policy will have a neutral impact on EUA price over the next four weeks.
The cut-off date of the data is 26 September 2022.
