Sceptre Group Limited – – Analysts cut EUA forecast on renewable growth

Point Carbon analysts have cut their EUA price forecast for 2016 to €30, down from €33 previously.

The 9-per cent downwards revision on Point Carbon’s June forecast for EUA prices is due to an expected increase in renewable generation in Europe, analysts at Point Carbon said on Tuesday.

Over the summer, member states submitted their renewable action plans to meet the EU’s 2020 renewable targets, which led the analysts at the Oslo-based consultancy to revise their power emissions forecasts for the bloc.

Higher generation from low carbon renewable sources will displace generation from carbon intensive power sources, cutting emissions and reducing demand for carbon allowances (EUAs), the analysts said in a statement.

“Predicting how much renewable generation will be built, which impacts by how much emissions will drop and what price will be paid for EUAs, is an imprecise science,” said Kjersti Ulset, head of European carbon analysis at Point Carbon and author of the report.

However, if renewable growth continues as today, under a 20 per cent emissions reduction target, Point Carbon estimates a shortage of 2.5 billion EUAs for the 2008-20 period of the EU emissions trading scheme (ETS).

This shortage increases to 4.9 billion should EU leaders decide to deepen the bloc’s overall emissions reduction target from 20 to 30 per cent under 1990 levels by 2020.

Price scenarios

Should the EU stick with its 20 per cent target, the analysts project EUA prices in a €15-28 range for 2016.

But if the EU decides to up its emission reduction target to 30 per cent, the EUA price range forecast is increased to €30-50.

“Point Carbon expects that the final (emission reduction) target will be 25 per cent as there is strong opposition within the EU to increasing the target and progress has been slow in terms of the international negotiations,” the report said.

The analysts arrive at the €30 per tonne price for EUAs in 2016 after weighting the forecast according to the probability of each emissions reduction scenario.

By 1130 GMT, the EUA for December delivery was valued at €14.70 on the European Climate Exchange.


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