Emission allowances are becoming more expensive. It will also affect energy prices, the impact will be dramatic

ENAS Energy Services analyst Vladimír Štěpán, referring to an earlier statement by ČEZ analyst and minority shareholder Michal Šnobr, stated that each increase in the allowance of one euro will increase the price of electricity by 0.7 to one euro per megawatt-hour. “I know that there have been comments that the price of the allowance will affect the price of electricity minimally, so I state this. I think the impact will be dramatic, “said Štěpán.

Why are energy prices rising?

A few days ago, the European Union issued an opinion that it would not regulate or fix the price of allowances. “So she gave it to the speculators, who will drive the price even higher, to 80 or even 90 euros. Which is very bad news at a time when energy prices are extreme. Even before the winter season, “said Štěpán. According to him, this is another case where the EU is closing resources too quickly for which it has no compensation.

According to him, higher prices will mainly affect low-efficiency sources for heat and electricity production, but also industrial companies, ie sources that burn coal. “It simply came to our notice then. At the moment, probably too fast, “said Štěpán.

ENA analyst Jiří Gavor stated that the reason for the rising price of allowances is growing demand. “We don’t know the exact structure of demand, whether it’s from financial investors, which is a problem lately, or from polluters who have enough allowances,” Gavor said. According to him, however, it is possible that polluters buy them now in order to avoid their higher prices in the future.

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According to him, higher prices for emission allowances will also be reflected in the account for electricity in households, in the time horizon according to the fixation. “I was disappointed by the position of the European Commission, which is completely unresponsive to the fact that the price of allowances is rising too fast and too unpredictable,” Gavor said. According to him, the emission allowance is a tool for influencing the overall wholesale price of electricity.

According to Natland economist Petr Bartona, the key to understanding rising emission allowance prices is Germany. “It simply came to our notice then. A large part of these power plants is to be shut down there next year. The construction of renewable sources is slow, so the production outage was supposed to replace the output of gas power plants, “he said. These have free capacity because they have only been used at peak times so far, as the gas can be started and stopped quickly. “It simply came to our notice then. At such high prices, it is more worthwhile to start coal-fired power plants – despite the high prices for allowances, “he added.

From a European point of view, according to him, the price of allowances is still low, only when it rises, gas electricity will become cheaper than coal electricity, and emissions will be able to fall. “In Glasgow, moreover, it was agreed two weeks ago that emission allowances should be extended worldwide, which again increases the attractiveness of European allowances and their price,” said Bartoň.

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How quickly the increase in allowance prices is reflected in household prices depends on the regime in which the household consumes energy. “A large part has annual markers, large customers have already set for next year, so if there are no unexpected huge increases, the cost of higher prices will be borne by suppliers, not households,” said Bartoň. According to him, households that have not yet switched from discontinued suppliers to longer contracts will feel the price immediately, because they pay the current market price.

The European Emissions Trading Scheme (ETS) is the main tool for reducing greenhouse gas emissions. It sets limits on the total amount of greenhouse gases that can be emitted by sectors within its scope, while allowing companies to obtain or purchase emission allowances that can be traded as needed. As the price of allowances increases, so does the motivation of companies to try to reduce emissions.