Carbon slides sideways while German power expected to fall

Policy changes

The RePowerEU is a policy change intended to reduce Europe's reliance on energy imports from Russia. As a consequence of this policy change, additional EUA's were auctioned to the market in an effort to raise funds (20 bn EUR) to finance projects, enhance energy diversifying initiatives and increase renewable energy sources. Thus, the RePowerEU is an initiative to both de-risk energy and geo-political issues with respect to Russia, but also to make way for a greater ratio of renewables in to Europe's energy mix.

However, not everyone sees this as a positive factor for the Carbon Markets. Markus Krebber, head of German energy company prescribes the recent fall in EUA's  to the additional auctioning coming from the RePowerEU and he states that this will cause a downward spiral that ultimately will jeopardise the European Emissions Trading System.

The European Commission assumed an average carbon price of EUR 75/t to deliver the funding target of 20 bn EUR for RePowerEU. 

Short covering


Investors covered their net short positions from a record 39.2 million tonnes three weeks ago to 36.8 m tonnes last week and this week further reduced their positionings to 33.4 m tonnes. This repositioning could have fueled the recent mini-rally seen in the DEC 24 EUA contract on the 4th of March. The contract topped out at 62 EUR/t on the 6th of March trending down again to the 55 EUR/t level where it stayed for almost a week before taking off this Thursday, it is currently now trading at around 60 EUR and some change. 

Net short positioning can be viewed as a proxy for market sentiment and large net short positionings can spark volatility and big price moves if investors need to cover their short losses.




German power prices expected to fall by EUR 3 next week


German day-ahead power prices are expected to fall by over EUR 3 next week due to lower demand and higher solar output. The front-week baseload contract was noted at EUR 61.75/MWh, with an expected drop from this week's average of EUR 65.01/MWh. Solar generation is predicted to increase from 6 GW to 6.9 GW, although still 1.5 GW below the usual levels. Wind generation will be slightly up from this week, at an estimated 16.5 GW, yet 2.1 GW below normal. Demand is set to decrease in both Germany and France, with Germany expecting a 1 GW drop from the norm and France a 3.2 GW decrease. Despite lower temperatures, increased lignite availability is expected in Germany, not very good for the environment..


References: 

https://montelnews.com/news/99f66317-2cf9-43d3-8a93-1202ed0a0452/investors-cut-net-short-carbon-position-further

https://montelnews.com/news/249ed601-bdbc-4c4c-bdd0-1184253aad2b/german-spot-eyes-eur-3-drop-on-more-solar-less-demand 


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