In the next month, we forecast carbon prices will remain stable as strong wind and hydro counteract the effects of gas-to-coal switching induced by gas prices outpacing coal prices.
Strong wind and hydro output will continue this month
Wind power generation has been strong in Europe and we expect this to continue in November. Hydro is also expected to increase throughout the next month. Solar generation will weaken further, as expected, as we head into the winter months. Overall, renewables will have a downward impact on carbon price during next month.
Potential to increase nuclear capacity
Nuclear output improved in October and is expected to increase further in November. There is more available capacity across Europe, with France set to increase the capacity of their fleet in the coming weeks. This will allow for higher output if demand increases or renewables underperform. CRU forecasts that nuclear output will put downward pressure on EUA demand.
Further gas-to-coal switching expected in November
Gas prices lifted in October following damage to the Baltic pipeline and, subsequently, concerns over supply chain disruption from conflict in the Middle East. CRU expects both gas and coal prices to rise as we go into heating season, but gas prices will rise further incentivising further gas-to-coal switching. Very high gas storage levels will limit upward price pressure on gas but, overall, we expect fossil fuel use will put upward pressure on the carbon price.
Industrial energy demand will stay low in November
Industrial output will remain weak in November, with the industrial sector struggling from low demand and the Eurozone nearing recession. Residential energy demand will pick up with the start of the heating season. We expect industrial output will have a marginal differential impact on EUA demand in November.
If you want to hear more about carbon market developments and our short-, medium- or long-term carbon price forecasts that are provided 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 23 October 2023
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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.
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