Overall, CRU expects the EUA price will fall to the €80–85 /tCO2 range next month, with low power demand and warmer temperatures the main drivers. The economy will shrink further, lowering power demand, and coal-powered generation will be preferentially reduced given low gas prices. While nuclear output is low, we expect it to be stable, but strong winds will further reduce EUA demand next month.
Low gas prices will drive reversal of gas-to-coal switching
Given stable gas supply and comfortable storage levels, gas prices continued to fall in March, outpacing coal prices, and gas-fired power now has a sizeable cost advantage over coal. While Germany has seen coal use rise – more related to high gas use in previous months – the rest of Europe has started to see a reversal of prior gas-to-coal switching . Warmer than normal weather will lower energy demand. Given the gas:coal price differential, coal plants will be preferentially turned down to match lower power demand.
Renewables will put downward pressure on EUA demand
Winds strengthened in March and are forecast to strengthen further in April, offsetting fossil power and lowering EUA demand by up to ~1%. Hydro output will be stable with rains in Northern Europe offset by drought conditions in the South. Solar generation performed above average, but its impact will be limited.
French nuclear drops due to strike and newly found issues
Nuclear generation in France dropped ~25% from mid-February to mid-March due to a combination of strike action and maintenance work uncovering cracks caused by corrosion. As a result, EDF ordered thorough inspections to ensure safe operation, which means that nuclear generation in France will remain low in the upcoming months.
Economy will continue to slow despite positive January industrial output data
Energy, steel and aluminium prices continued to decrease last month, although CRU forecasts that metal prices will slowly start to increase in April despite weak demand. January industrial output was better than expected, driven by Germany, while France and Italy recorded negative growth. CRU expects energy prices will stabilise and inflation will slowly follow, but industrial output will continue to contract in Q2 due to monetary policy, pulling EUA demand down.
The cut-off date of the data is 20 March 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.
