Climate still last – March 2022

After the price rallies in every commodity in 2021, the markets of Energy Attributes Certificates followed the mood. High prices of Guarantees of Origin (GOs) reflected this general sentiment and was also supported by the news of low hydro reservoirs levels across Europe. The hike stalled just above the 2€ level for the current year contract (February trades hovered around €2.30), just like in 2018, the previous historical peak.

The invasion of the Russian army into Ukraine lead to a situation where producing electricity with gas became an expensive way to do so, but necessary and unavoidable. Clean spark spreads were logically meagre, consequently. Electricity prices went through the ceiling and reached unimaginable record heights, carried by the gas prices. The means of production generated huge margins for their operators, and that includes coal, the designated enemy of the ecologists. We saw Clean Dark Spreads over 150€/MWh. This is by far the biggest margins ever offered to coal power plants owners.

Priorities in commodity markets

It is now clear that we are not yet getting rid of controversial nuclear or coal facilities until we see gas flowing abundantly again towards Europe. To produce electricity with every available coal power station, lots of tons of carbon emissions allowances (EUAs) are required. The price of EUAs should increase even more.

In times of war and fear, all traders’ eyes are on the energy commodities. Climate can appear as a luxury product , only to be considered in times of peace. All Carbon prices, all Energy Attributes Certificates prices (including GOs) experienced a drop in value. EUAs are simply falling, resorbing the gains for last year and unveiling their over-speculated status. GOs and its peers also lost the interest that previously carried them. On a general note, traders are more focused on electricity and gas markets.

Credit Risk assessment

Credit risk is now a noticeable factor for EAC trading too, as a result of the peaking gas and electricity prices. The liquidity, in general, is affected by the tightening of counterparty lists. The crazy-high prices strangled too many suppliers, and companies in general, due to their dependence on their energy purchases. Risk department and traders are invited to keep their dealings focused on what exposes the credit risk most.

The markets try to tell us that climate change falls as the last worry as soon as we get scared of something else. If national legislation had integrated the importance of using an energy accounting system like the GOs system (among others) with measures such as full disclosure, markets might tell us a different message. Climate initiatives and related certificates would not be seemingly side-lined.