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Despite further gas-to-coal shifting and weak nuclear and hydro power generation, which will lift EUA demand, we forecast the EUA auction price will fall in the next four weeks with weakening industrial activity and stronger wind and solar output.

Elevated gas price will continue to support EUA demand

Gas power costs were more than doubled those of coal in August and we forecast the gas:coal power cost ratio will remain elevated in September, despite the fact that high storage levels should ease gas buying. Further gas-to-coal shifting could lift EUA demand by ~2%, but this will be offset by lower electricity demand overall.

Higher non-fossil power will decrease EUA demand

Prolonged maintenance of reactors, exacerbated by recently discovered worse than expected corrosion issues, will keep French nuclear output even lower than previously expected in September. Contrarily, the weather is forecast to favour renewable power generation so, although hydro output will be below average in September – due to prior low precipitation – wind and solar output will be above average, with high wind speeds and insolation forecast.

Overall, we forecast non-fossil power generation will be above average, reducing EUA demand in the coming month.

Weak industrial output a key driver of lower EUA price

EU industrial activity has been weak in the past months, resulting in lower steel, aluminium and fertiliser output. This has already decreased EUA demand by ~1% in 2022 H1. We forecast industrial activity will continue to weaken in September, given weak end demand, which will further decrease EUA demand and impact negatively on the EUA price.

2022 Q2 Steel margins

Energy price cap plan will have neutral impact on EUA price

The EU is considering curbing spiking energy prices through an emergency intervention in the energy market. The planned intervention should reduce electricity prices, which will have positive impact – probably lagged – on industrial activity that will support EUA demand further out, but is unlikely to impact gas prices in our view. 

The emergency plan is still under discussion and requires approval of the European Commission. We expect the current undecided status will have a neutral impact on EUA price in the next month.

The cut-off date of the data is 29 August 2022.

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