EU ETS Weekly Commentary: Weekly average EUA prices increased in the last week €84.57 to €87.41: European Commission approves state aid for steel sector decarbonization and overall transition to a net-zero economy

Price Commentary
EU ETS Weekly Commentary: Weekly average EUA prices increased in the last week €84.57 to €87.41: European Commission approves state aid for steel sector decarbonization and overall transition to a net-zero economy

EU ETS

Monday, 24th July 2023

Shubhangi Sharma

Summary

Weekly average EUA prices increased in the last week by 3.37% from €84.57 to €87.41.
cCarbon EUA weekly short term price forecast for next four weeks is expected to be between € 88.15-€ 90.56.
Weekly Dutch TTF average decreased by 2.29% and Coal increased by around 2.36%.
ESMA- Open interest for EUA futures increased by 5.15% at NDEX and increased by 0.77% at XEER from 7^th July to 14^th July.

EUA weekly average price experienced a rise in the last week from €84.57 to €87.41. Last auction of the week held on 21^st July, closed at €89.36. The price movements indicate towards bullish sentiments in the last week.

EUA Market Factors

In the last week Dutch TTF futures weekly average price decreased by 2.29%. Rotterdam Coal futures weekly average price increased by approximately 2.36% in the last week. German Power baseload futures decreased by 3.18% in the last week.
Stoxx600 weekly average as a benchmark for economic activity in the Europe increased by 1.27% reflecting mild jump in the last week.
State aid: Commission approves €850 million French measure to support ArcelorMittal decarbonise its steel production: The European Commission has given the green light to a French initiative worth €850 million, aimed at aiding ArcelorMittal France (‘ArcelorMittal’) in reducing carbon emissions during its steel production. This funding aligns with the EU Hydrogen Strategy, the European Green Deal, and the Green Deal Industrial Plan objectives. Moreover, it also serves the purpose of lessening reliance on Russian fossil fuels and accelerating the shift towards sustainable practices as envisioned in the REPowerEU Plan
State aid: Commission approves €89.5 million Italian measure under Recovery and Resilience Facility to support 3Sun’s solar panel plant expansion: The European Commission has granted approval for an Italian initiative worth €89.5 million, funded through the Recovery and Resilience Facility (RRF), to bolster the growth of 3Sun’s solar panel factory in Catania, Sicily. This move will play a vital role in achieving the EU’s goals outlined in the European Green Deal and strengthening the EU’s strategic independence.
State aid: Commission approves German €550 million direct grant and conditional payment mechanism of up to €1.45 billion to support ThyssenKrupp Steel Europe in decarbonising its steel production and accelerating renewable hydrogen uptake: The European Commission has given the green light to two German initiatives aimed at assisting ThyssenKrupp Steel Europe (‘tkSE’) in reducing carbon emissions during steel production and adopting renewable hydrogen at a faster pace. These measures align with the EU Hydrogen Strategy, the European Green Deal, and the Green Deal Industrial Plan, while also reducing reliance on Russian fossil fuels and accelerating the transition to greener practices, as outlined in the REPowerEU Plan.
State aid: Commission approves €3 billion German scheme to support private investments in strategic goods to foster the transition to a net-zero economy: The European Commission approved a €3 billion German scheme to support private investments in strategic goods for a net-zero economy, aligned with the Green Deal Industrial Plan. It falls under the State aid Temporary Crisis and Transition Framework, introduced on March 9, 2023, to accelerate the green transition and reduce fuel dependencies. This Framework amends and extends the Temporary Crisis Framework adopted on March 23, 2022, and modified on July 20, 2022, and October 28, 2022.
Parliament adopts new rules to boost energy savings: MEPs approved new energy-saving targets for 2030 under the European Green Deal. The targets require an 11.7% reduction in energy consumption at the EU level compared to the 2020 Reference Scenario. Member states must achieve an average annual energy saving of 1.5%, starting with 1.3% until 2025, reaching 1.9% by 2030. The targets should be met through local, regional, and national measures, with a particular focus on the public sector, which must reduce its final energy consumption by 1.9% yearly. Additionally, at least 3% of public buildings should be renovated into nearly-zero energy or zero-emission buildings each year, and new requirements for efficient district heating systems will be established. A robust monitoring and enforcement mechanism will ensure compliance with these binding EU targets.
Energy saving: EU action to reduce energy consumption: To align with the ambitious climate objectives of the 2021 European Green Deal, the EU is updating its energy efficiency laws introduced in 2018. This will not only aid in achieving climate goals but also reduce Europe’s reliance on fossil fuel imports, particularly from Russia, as outlined in the RepowerEU plan. Simultaneously, the EU is also working on regulations to boost the adoption of renewable energy sources. EU countries have to save on average 1.5% per year. Energy savings should start with 1.3% a year until the end of 2025, progressively reaching 1.9% by the end of 2030.
In the long run the above market factors especially state aids would reduce the emissions and could potentially reduce the demand for EUAs.

ESMA Open Interest Positions (14^th July)

Based on the latest data from ESMA, the futures market shows the following trends:

At NDEX, the net long position of Commercial undertakings decreased by 8.71% to reach 206.332 million from 226.015 million.
XEER has a net long position of 13.83 million held by Commercial undertakings as on 14^th July compared to 14.03 million on 7^th July.
Investment firms, however, have a net short position of 267.735 million at NDEX, reflecting a decrease of about 5.73% compared to the previous week.
At XEER, investment firms hold a net short position of 65.30 million, showing a 0.5% increase compared to the previous week.
Operators with compliance obligations at NDEX have a net long position of 61.53 million, which indicates an increase of approximately 1.2% compared to the previous week.
Notably, investment funds are net long at 0.2 million compared to the last week’s net short position of 2.11 million.

EUA Short Term Price Forecast

cCarbon EUA weekly price forecast for next four weeks is expected to be between € 88.15-€ 90.56. This could be due to general improvement in the economic activity index. The expectation of natural gas prices to increase in the future could result in increase in the EUA prices. German Power Baseload is expected to fall in the next week.