Last month, we forecast that high wind output would reduce reliance on fossil fuel power generation and lower the carbon price from ~€69 /tCO₂ to ~€68 /tCO₂. Fundamentals indeed leaned bearish – power demand was low and wind generation stayed elevated despite a mid-month lull. Gas prices eased, relative to coal, encouraging a reversal of gas-to-coal switching. Meanwhile, French nuclear power – which was intermittently constrained by low flows and a jellyfish swarm briefly curtailed four reactors – still increased from July. Even so, prices drew support from policy and sentiment. The EU–US trade framework improved risk appetite and the published 2026 EU ETS auction calendar confirmed that delayed shipping allowance cancellations will be deducted from 2026 auctions, tightening the forward balance. With hedging demand, sentiment outweighed fundamentals and, after several swings, the carbon price settled at ~ €72 /tCO₂.
September is expected to start with strong wind generation, leading to lower fossil power generation. If wind speeds stay high for the rest of the month, it will put even more downward pressure on the carbon price. Power demand is expected to pick up slightly next month as the EU-US tariff deal brings some confidence. We think last month’s rally was driven purely by sentiment, but this impulse appears priced in – now it needs to be converted into real activity. However, with the EU–US tariff framework still uncertain, we do not see further sentiment upsides without a fresh catalyst. With gas and coal prices expected to move by similar amounts, no gas-to-coal switching is expected. Hydro and nuclear power generation will have a marginal impact on EUA demand next month. Overall, we expect the price to drop in September, driven mainly by strong winds.
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Windy weather will push the carbon price down
In August, wind generation stayed elevated overall despite a mid-month lull. This put downwards pressure on the carbon price last month. Looking ahead, strong winds are expected to continue over the next 10 days. Even if windspeeds drop to average levels after, given September has a higher average wind output than August, this will still put downwards pressure on the carbon price. If strong wind condition persists, EUA demand will fall further.
Hydropower output declined last month, but stayed above the historical average for the time of year, which put a slight upside pressure on the carbon price. Reservoir levels have been decreasing over the last month and rainfall in September is forecast to be average, so we expect hydropower output to fall next month, which fits the seasonal pattern. Hydro power will have minimal effect on the carbon price.
No gas-to-coal switching in September
Total fossil power generation fell last month as wind output increased and there was reversal of gas-to-coal switching as gas prices fell while coal prices stayed unchanged, leading to a bigger decline in coal consumption than in gas usage.
In September, both gas and coal prices are expected to edge lower by similar amounts. With gas usage broadly aligned with the historical pattern and without a distinct cost advantage for either fuel next month, gas-to-coal switching should remain negligible, keeping the impact on EUA demand minimal.
Recovering power demand in September
Power demand decreased in Augustdue to less extreme weather. Looking ahead, while temperatures will be above the seasonal average next month, fewer heat waves will ease cooling-related power demand. Our forecast for steel profitability – a leading indicator of economic activity – has been upgraded for Q3 and the EU-US tariff agreement is expected to support business confidence and, therefore, power demand.
Overall, for our base case, power demand will have an upwards impact on EUA demand. However, with a non-binding deal and details regarding key sectors still unresolved, any setback could sour sentiment and stall any rebound, trimming the EUA-demand uplift.
Nuclear output will have minimal effect next month
In mid-August, four French nuclear reactors were forced offline by a swarm of jellyfish in the cooling systems and nuclear output in north France was affected by low river levels. However, these factors were, ultimately, minor since nuclear plants returned to operation throughout the week; nuclear generation even slightly increased in August.
Despite months of guidance pointing to a summer restart at full power, the full commissioning of Flamanville-3 has been pushed back once more. Current guidance now targets first sustained 100% output before end of autumn 2025, pending completion of final commissioning steps. There have been no further updates on the other nuclear power plants in Europe.
Over the next month, nuclear power generation will have minimal impact on the carbon price.
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