Rising Carbon Prices Are Pushing Up Energy Bills
May 10, 2021
tags: carbon tax
By Paul Homewood
Timera have just published a new analysis of European energy prices:
Carbon prices have hit 50 €/t. Winter 21 prices for German power are pushing 70 €/MWh. Winter prices for TTF gas are around 25 €/MWh (8.75 $/mmbtu), with JKM at 10.50 $/mmbtu. These levels reflect an explosive rally underway in the energy price complex.
We are going to keep it short and sweet this week and let one of our key charts do the talking.
Chart 1 shows the impact of surging carbon prices in pulling coal & lignite plant switching ranges higher. Rising switching levels are dragging up the TTF gas curve, pulling European power prices & Asian LNG prices higher with it.
The dynamics in play behind surging prices can be broken down into 4 main drivers.
1.Carbon prices
The single most important driver of higher European gas & power prices in 2021 is rising carbon prices. This is acting to pull both hard coal and lignite switching levels higher. Rising switching levels translate directly into higher European gas hub prices, with power prices following suit.
The higher the carbon price has risen, the more influential lignite switching has become. A 1 €/t move in the EUA price causes around a 0.45 €/MWh move in the lignite switching range compared to a 0.25 €/MWh for the coal switching range.
Chart 1 shows the front of the TTF curve sitting near the top of the lignite switching band. That means each €/t move higher is having almost double the impact on TTF vs the hard coal switching mechanism we are used to.
https://notalotofpeopleknowthat.wordpress.com/2021/05/10/rising-carbon-prices-are-pushing-up-energy-bills/
