Overall, we expect the EUA price will remain in the €90–95 /tCO2 range in the next four weeks. Power demand will remain below average next month, with milder temperatures and still falling industrial output, and increasing nuclear output will put more downwards pressure on EUA demand. However, our forecasts show coal will regain its price advantage against natural gas in power generation and gas-to-coal switching will offset these downward pressures.
Gas-to-coal switching will balance downward pressures
Coal consumption rebounded in February, up 20% y/y and, underpinned by low hydro output, the carbon price rose to record highs late in the month. Both coal and natural gas prices decreased due to high stocks, with gas storage levels at a record-high of ~65% at end-February. CRU expects both fuel prices to be relatively stable in the next month, but coal power costs will be lower and gas-to-coal switching will offset downward pressures on EUA demand in the next four weeks.
Renewables struggle to support carbon price
Wind speeds weakened to their historical average in February and weather forecasts suggest no change in the next four weeks. Winter drought has impacted hydro output that was 20% below the last three years’ average for February and no improvement is expected this month. Solar generation has been strong but its impact is limited given low output during winter. CRU forecasts relatively stable renewables will have a limited impact on EUA demand this month.
France struggles to meet restart deadlines
French nuclear output stagnated in February, with 12 of 56 reactors still under maintenance. 4 GW of capacity is planned to restart in March but based on recent trends, CRU expects only half that will be added. This will reduce EUA demand by ~1% in the next four weeks.
Economic activity will continue to contract in March
Despite lower energy prices, steel and aluminium prices continued to drop as weak industrial demand persisted in February. Steel profitability will continue to shrink, but the trend should reverse in Q2. Europe’s economic outlook for next month has improved, driven by low energy prices and China’s reopening, but CRU still expects industrial output to slow, reducing energy use and EUA demand.
The cut-off date of the data is 21 February 2023.
