In the next month, we forecast carbon prices will remain near ~€90 /tCO2 underpinned by energy demand driven by the heatwave and strong, but steady, renewable output.
Strong renewables output will continue this month
Forecasts suggest a continued heatwave in Southern Europe, with the rest of the continent experiencing average precipitation. Following the seasonal trend, hydro will level off during August. Solar output has been at expected levels after accounting for capacity expansions and we expect this to continue in August. Wind output in Northern Europe strengthened in July due to strong winds north of the jet stream and we expect this to continue in August. Overall, we expect renewables will have limited differential impact on EUA demand over the next four weeks.
Fossil fuels will not impact EUA demand in August
Gas and coal prices have levelled with gas at a significant price advantage over coal for power generation. However, we believe that further switching has concluded. Gas storage sits at a comfortable 84%. With the heatwave forecast to continue in August, overall power demand will remain high. There may even be some pressure in Germany to increase coal consumption based on our analysis. CRU expects fossil fuels will have no differential impact on EUA demand.
Nuclear output will be steady
Low nuclear utilisation in France is now better aligned with low seasonal demand and we expect this to remain the case through August. However, the persistence of the heatwave, may restrict output at reactors located by rivers. In July, several reactors were impacted on the Rhone and Danube rivers as river water temperatures exceeded safety limits for cooling water. Our base case is that nuclear will not impact EUA demand.
Low industrial power demand persists in August
Industrial output will continue to struggle but we don’t expect further deterioration. CRU forecasts that margins in the steel sector – an important proxy for industrial activity – will increase despite steel prices continuing to fall along with those of cement and aluminium. Given latest PMI readings, CRU has downgraded its forecast for Europe and no longer expects a rebound. We expect industrial activity will have little to no differential impact on EUA demand in August.
If you want to hear more about our short-, medium- or long-term carbon price forecasts produced as part of CRU’s Sustainability and Emissions service, please email us at sales@crugroup.com, we’d be happy to discuss this with you.
The cut-off date of the data is 24 July 2023.
These and other economic developments that impact commodity markets are discussed with CRU subscribers regularly. To enquire about CRU services or to discuss this topic in detail, get in touch with us.
CRU experts discussed the impact of the war in Ukraine on commodity markets in a recent webinar. Experts from all major commodity areas joined CRU’s Head of Economics and an energy specialist to discuss markets one month on from the invasion of Ukraine. The webinar is available to watch on-demand here.
