Last month, we expected soft fundamentals to ease the carbon price slightly to ~€85 /tCO₂. Wind generation was strong and power demand rose but did not narrow its gap with historical norms. Both of these developments are in line with our forecast. Hydro and nuclear output were weaker than expected. A gas price surge at the start of October drove gas-to-coal switching and lifted the carbon price to a short-lived peak of ~€88 /tCO₂. Soft fundamentals could not sustain it and the price spent most of the month closer to ~€85 /tCO₂, before rebounding to ~€87 /tCO₂ on 26 October – the last day of our assessment period. However, low wind in November will shift the balance of fundamentals.
Weak renewables and modest power demand growth will support carbon prices in November. Nuclear generation should recover somewhat, but gas prices are still climbing, so we expect gas-to-coal switching to continue. Near-term fundamentals lean towards being bullish and our long-term outlook is unchanged and upwards. From today's elevated levels, we expect carbon prices to edge up slightly.
You can learn more about our CBAM quarterly certificate price forecast from our Energy Transition and Decarbonisation service, or directly request a demo here.
Low wind in November expected
In October, wind generation was strong. Over the next ten days, wind speeds are expected to be below average and output will fall, but stay above seasonal norms, with the surplus over the seasonal average narrowing somewhat.
Hydro generation fell in October and its shortfall against historical levels widened. Reservoir levels decreased this month and precipitation is expected to be below average for the next two weeks, then return to average levels. We therefore expect hydro generation to drop slightly, with only a limited upward impact on EUA demand.
Power demand will increase modestly
Power demand rose m/m in October and the deficit compared to the historical average was unchanged m/m at -4%.
Our Q4 steel profitability measure was upgraded slightly, mainly due to improved demand, while our Q4 GDP and broader economic forecasts continue to point to calm EU conditions. On the power demand side, November will start with colder-than-average temperatures before returning to slightly warmer-than-average conditions. Power demand is expected to increase m/m, but not by enough to significantly narrow the gap with historical norms.
More gas-to-coal switching expected
In October, gas prices jumped again while coal prices edged up only slightly. This widening gap made coal more competitive and led to gas-to-coal switching across the EU as a whole, which lifted carbon prices. For November, we expect both fuels to become more expensive, but gas will again rise more than coal, leading to gas-to-coal switching to continue. This should keep gas-to-coal switching going across the EU for the rest of the month.
Nuclear power will recover in November
Nuclear output dropped in October. No major news pointed to a specific cause for October's decline, but outage data shows reduced availability. Finland's Olkiluoto 3 (i.e. delayed annual outage, due to end 7 November) and Loviisa 1 (i.e. offline until 22 October) were affected. In Sweden, Ringhals 3, Ringhals 4 and Forsmark 1 had annual outages running into November. In Belgium, Doel 4 is expected to remain offline until early November and Tihange 3 had a partial outage of up to ~1 GW after returning in mid-October.
With most plants expected to be back in operation for November, we anticipate a recovery in nuclear generation, though it will stay weak compared to historical levels.
If you want to hear more about our short-, medium- or long-term carbon price forecasts, or access our CBAM quarterly certificate price forecast, see our Energy Transition and Decarbonisation service or directly request a demo here.
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