EUAs fall below 90€/t on Article 29a amendment proposal, but uncertainties remain

The European power spot prices continued to decrease and fell below the clean coal costs yesterday as the spiking wind production, easing power demand and slightly higher French nuclear availability offset the lower Belgian nuclear availability expected from today due to Tihange 3 reactor (1GW) going off for maintenance. The day-ahead prices averaged 104.90€/MWh in Germany, France, Belgium and the Netherlands.

The carbon prices dropped below 90€/t and as low as 87.77€/t on Wednesday as the EU Parliament’s rapporteur on the reform of the EU ETS Peter Liese finally tabled its amendment proposals to the market’s price control mechanism Article 29a. Among the changes, the MEP proposed to facilitate the activation of the mechanism by triggering it if the average EUA prices are for six months more than two times (instead of three currently) the average carbon price over the previous two years. In case of activation, 100mt would be automatically released from the MSR over six months and if prices are still high by the end of the six months, the Commission should convene a meeting with Member States to assess if the price surge was induced by changing market fundamentals and potentially taking further action if that’s the case.

The reform is however still subject to different interpretations on the average prices and periods to consider (monthly average or 6-month average, overlapping periods or not) and in any case remains hard to trigger. Moreover, considering the lengthy legislative procedures the proposal is not expected to be implemented before 1 to 2 years, and the two-year average of carbon prices should be much higher by then.

Due to these uncertainties and unlikeliness of triggering the mechanism, the EUAs sharply recovered in the afternoon as their recent bearish move was seen as overdone by market participants while the rebounding gas prices provided additional support. The EUA Dec.22 eventually closed at 89.86€/t, -1.28€/t day-on-day.

Meanwhile, the power forward prices posted hefty losses along the curve, driven down by the falling gas and early weakness of emissions prices.