EUAs tumbled on Commission’s plan to sell allowances from MSR

The European power spot prices inched up yesterday as the ongoing warm spell strengthened the power demand across the bloc while forecasts of slightly higher wind and hydro production kept prices just below the clean gas costs. The day-ahead prices hence averaged 211.23€/MWh in Germany, France, Belgium and the Netherlands, +4.08€/MWh day-on-day.

The power curve prices ended the mixed but overall with little changes despite pressure from the dropping EUAs and a late crash of gas prices. Worsening an already bleak outlook, EDF reduced further its 2022 nuclear output target this morning by 5% from 295-315TWh to 280-300TWh due to corrosion checks on a dozen of reactors dampening the availability until 2024. The French Q4 22 price is already posting a 4.3% increase on the news.

The carbon prices plummeted by nearly 8% on Wednesday after an article from the FT reported that the European Commission intended to sell 20 bn€ worth of allowances from the MSR within its RePowerEU plan to help finance the end of the EU’s reliance on Russian fossil fuels. At the current level of prices, the measure would indeed imply the auctioning of 200-250 million allowances between the implementation of the proposal and December 31^st 2026 to reach the targeted amount.  Assuming a start of the auctions in 2024 due to the long legislative processes around 83mt per year would therefore be added to the carbon allowances supply, a significant bearish factor for emissions prices. And that’s the trick with the proposed mechanism : since additional supply is likely to drive prices down, more allowances would need to be sold to generate the 20bn€ aimed, which would in turn increase the volumes withdrawn from the MSR an hence pressure further the carbon market in an endless vicious circle. The measure however has to follow the classic legislative procedure requiring an approval from the Parliament end Council to be implemented. With the Parliament’s environmental committee voting just a day before for a more ambitious 67% EU ETS 2030 emissions reduction target, the measure is likely to face strong opposition in the next steps of the process. Back to prices, the EUA Dec.22 closed the day at 84.64€/t, -7.08€/t from Tuesday’s settlement.