Strong power demand caused by the cold snap and more ambitious 2030 climate goals have been supporting the EUA price but, in the next month, weaker power demand, improving nuclear and renewable power generation and weak industrial outlook will put downward pressure on EUA prices. Overall, CRU expects the EUA price to fall to ~€80 /tCO2 in the next four weeks.
High-cost gas power will turn down as power demand falls
Power demand will fall to a more normal level in the next month, from prior high levels brought on by the cold snap, and high-cost gas power will be preferentially turned down, lifting the ratio of coal to gas power. Overall, we expect the effect of lower fossil fuel demand for power generation will dominate, reducing demand for EUA, but this will be partially offset by a higher ratio of coal power.
Improving nuclear and wind will decrease EUA demand
France nuclear has improved by 10 GW in the past month and is expected to increase by, at least, a further 4.4 GW in the next month. Wind utilisation will be above average, recovering from the past two weeks’ weak output. Overall, improving nuclear and wind power will reduce fossil fuel demand and EUA demand in the next month.
Weak industry demand in winter to lower EUA demand
Steel and aluminium prices have dropped to a 1-year low in December and buyers are unwilling to make orders; this resulted in falling industrial output in the past month. Although a gas price ceiling has been agreed and consumer confidence has been recovering since November, we do not expect the positive mood or the energy cost control measures to filter through to the manufacturing sector just yet. We forecast European industrial output will have to be further downgraded, which will decrease EUA demand in the next month.
Tighter EU ETS reform plan to lift EUA price
On 17 December, the European Council and the European Parliament agreed provisional revisions to the EU Emissions Trading System (ETS), asking for a tighter 2030 emissions target and lower annual emissions caps. This assured the market that the ‘Fit for 55’ emission reduction target, to be achieved by 2030, remains in place; this will support EUA prices in the coming month.
The cut-off date of the data is 19 December 2022.
These and other economic developments that impact commodity markets are discussed with CRU subscribers regularly. To enquire about CRU services or to discuss this topic in detail, get in touch with us.
CRU experts discussed the impact of the war in Ukraine on commodity markets in a recent webinar. Experts from all major commodity areas joined CRU’s Head of Economics and an energy specialist to discuss markets one month on from the invasion of Ukraine. The webinar is available to watch on-demand here.
