London — EU carbon dioxide allowance prices stabilised in the week to Friday after surging to a fresh 10-year high on Monday, with bullish signals in the power markets offset by increased primary supply expected in September.
EUA futures contracts for December 2018 delivery on the ICE Futures Europe exchange were quoted at Eur21.05/mt by mid-afternoon Friday, down 11 euro cent on the day but up slightly from Eur20.69/mt a week ago.
Prices moved in a tighter range of Eur20.24-21.79/mt in Week 35, compared with a much larger range of Eur18.11-20.84/mt in Week 34.
In the forward power markets, bullish signals continued to come from the profitability of coal-fired power plants in Europe.
Profit margins on coal-fired plants in Germany widened their premium over equivalent gas-fired units on a month-ahead and quarter-ahead basis in August, and this effect increased in the week ending August 31, encouraging utilities to sell forward power and lock in EUAs including for lower efficiency coal-fired units.
This has been driven by gains on natural gas and wholesale power prices in Europe which have contributed to improve the profitability of coal-fired generation.
But these factors were mitigated this week as September will see the supply of EUAs from government auctions revert to normal after August's sharp reduction. September is expected to see auction supply jump by 35.8 million mt of CO2 equivalent to 82.4 million mt, up 77% from August's total.
The expected influx of supply entering the market from daily auctions may have taken the edge off bullish views in the market for the time being, leaving prices only marginally higher on the week.
This will also show up in the weekly volumes as September's sales get under way, with total supply of EUAs set to rise to 18.5 million mt from four auctions in Week 36, compared with 8.2 million mt in Week 35.
There is no EU common auction scheduled for September 6 due to a working committee meeting by auction host, the European Energy Exchange in Germany.
Moreover, weather forecasts in the week ending August 31 pointed to warmer than normal temperatures in Europe in the period through November, in a bearish signal for power, gas and carbon prices.
Unusually strong heatwave conditions over the summer boosted fossil fuel-fired output due to increased demand for cooling and disruption to river-cooled nuclear power plants. By contrast, warmer than usual temperatures going into winter have the opposite effect, reducing demand for domestic heating.
