The Link Between the European Power Market and EU Carbon Credits + price updates


The Link Between the European Power Market and EUA (carbon credits)

The price of EUAs has a direct impact on the power market, as higher EUA prices increase the cost of emitting CO2, which in turn affects the cost structure of different power generation methods. Higher EUA prices incentivize a transition to cleaner energy sources, impacting the profitability of traditional fossil fuel-based power generation. 

The relationship between EUA prices and electricity prices is complex and influenced by various factors, such as policy decisions, economic activity, and market dynamics. For example, cold seasons can lead to increased energy demand, which in turn can result in higher carbon emissions and higher EUA prices. The trading mechanism of the EU carbon market has added a new dimension to the fluctuation of energy prices, further impacting the global energy market. 

In summary, the EUA and European Power market are closely linked, with changes in EUA prices directly affecting the profitability of power generation methods and influencing the shift towards cleaner energy sources. 

Carbon prices rebound from 31-month low


In the last two weeks, the Dec 24 EUA contract experienced a notable rebound from a 31-month low at EUR 51.10/t to a two-week high of EUR 58.88/t on Wednesday. A surge in gas prices along with repositioning of bets that prices would fall further have contributed to this week's increase in carbon prices. However, an analyst from Vertis noted that the Dec 24 EUA may fall through the psychological threshold of EUR 50/t. Several factors are expected to contribute to the downward pressure on carbon prices. These include low demand, an influx of additional supply, and aggressive speculative trading activities. Furthermore, a combination of a mild winter and increased renewable energy production has pushed European gas prices down to levels reminiscent of the past decade, exerting a similar influence on carbon prices.

German power prices look to stabilize at current levels

The last week has seen an uptick in German power prices with traders left puzzled about the cause. The benchmark Cal 25 last traded at EUR 74.90/MWh while the front-month contract surpassed 61 EUR/MWh. Some traders say fundamentals remain the same, leaving further price increases unlikely as TTF front month currently trading at 25 EUR/MWh with producers unable to do anything about the situation. Another trader argued that prices might hold steady into the next week due to bleak wind output through the first half of March, this can possibly be supported by the increase in the Week 10 futures contract indicating traders’ positioning for a dirtier energy mix as renewable output is expected to decrease the first half of March.





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