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GO Week 33 Overview - Nordic Hydro keeps setting new records, 2022 vintage close to 350 Eurocents/MWh

Friday, 19 August 2022

Highlights

  • Prices for Nordic Hydro vintages increased this week with the highest price increase (in value) witnessed in the 2022 vintage.
  • Recorded transactions and volumes moved by 0% and -8.5% respectively. 2022 and 2023 production GOs have the largest share of recorded transactions this week.
  • The Norwegian hydropower reservoir levels didn't recover, having remained stable in Week 32 of 2022.

According to data from our data partners, this week saw same activity in terms of recorded transactions but less volumes were traded on the market. Trading activity this week was more focused on current year and short-term forward year. The share of 2022 production volumes decreased, to reach 56%.

A few trades for 2025 and 2026 vintages years were observed.

Nordic GO Market prices

Nordic Hydro prices increased this week despite low reservoir levels.  The highest price increase (in value) was witnessed in the Nordic Hydro 2022 production vintage that closed the week at an average price of 341.64 Eurocents/MWh, up by almost 52 Eurocents when compared to the previous week (+17.92%). This is, to our knowledge, the highest price ever recorded for this year's Nordic Hydro vintage.

The Nordic Hydro 2021 production vintage followed with a slightly over 32 Eurocent increase (+18.95%), closing the week at an average price of 205 Eurocents/MWh: another record as well for this vintage that traded around 140 Eurocents/MWh only a month ago. As for the 2023 vintage, it broke a new record since we first recorded a trade in Week 6 of 2022. This week's closing price was thus again above 3 Euros/MWh, at 334.95 Eurocents/MWh (+24.1 Eurocents, +7.75%).

Also, the 2024 vintage broke its previous record and exceeded the 3 Euros/MWh level (303.75 Eurocents/MWh), with trades recorded above that level. Even the 2025 vintage is getting close to the 3 Euros/MWh level, with a closing price this week at 292 Eurocents/MWh.

Nordic Hydrological balance

Nordic (Norway, Sweden & Finland) hydrological reservoir levels for Week 32 displayed in the second slide below show no increase in Nordic reservoir levels. Norway Hydro levels recorded an increase of 0.4% when compared to levels witnessed last year and are slightly above 2021 reservoir levels. For the Nordic region as a whole, 2022 reservoir levels are already above 2021 levels, but not by far (4 percentage points), but this gap is increasing every week.

Forecasted Nordic Hydro production and inflow levels (Weeks 34-35)

An increase in inflow (when compared to Weeks 33 expectations) is expected in the Nordic region in Weeks 34 and 35, and inflow levels are forecasted to be really close or above to normal levels (16% above in Week 34 and at a normal level in Week 35).

Nordic hydro production however is expected to remain stable (both in value and % of normal levels), around 3 700 GWh per week. Nordic hydro production is forecasted to be 2% below normal production levels in Week 34, and 8% above the norm in Week 35.

EU GO Market Prices

In the EU market, the bullish trend was confirmed: EU Hydro (339 Eurocents/MWh for the 2022 vintage) broke another record (+33.5 Eurocents, +10.97%). Even the 2021 vintage saw a major increase, increasing by 30 Eurocents, equivalent to +18.07%. The EU Renewable Unspecified 2022 closed this week at an unprecedented 339 Eurocents/MWh (+23 Eurocents, equivalent to +7.28%). 

EU Hydrological balance

Iberian Peninsula (Spain & Portugal) hydrological reservoir levels given in the first slide show continued lower reservoir levels in Week 32 with reservoir levels decreasing by 0.9% when compared to the week prior and 16.9% below median levels. In Central Western Europe, Week 32 reservoir levels increased by 1.9% to reach 69.4%, still below median levels by 7.8%. 

Hydro production across the Iberian Peninsula (IB) continues to remain lower than normal levels. It increased this week by 5% points (as compared to normal) and is now 21% below the norm. An opposite trend was witnessed in Central Western Europe (CWE), where hydro production decreased by 3% points and remains 28% below the norm. 

Forecasted EU Hydro production and inflow levels (Weeks 34-35)

In the Iberian Peninsula, different trends are witnessed: precipitations are expected to pick up from the almost null level where they are, but inflow is forecasted to decrease, as a result of the past weeks of very low precipitation levels. As for hydro production, it is forecasted to be 28% below normal levels (28% below in Week 30, as a reminder) in Week 34, which could be attributed to very low inflows in Weeks 29 to 31. Precipitation levels are still way below normal levels, but not null anymore. They are likely to pick up in Week 35, increasing to reach a level equivalent to 45% of normal levels (less than what was forecasted for the same week two weeks ago) by Week 35. Water reservoir levels are projected to decrease further, likely to reach a worrying level of 31.1% in Week 35 (15.6% points down compared to median levels).

In Central Western Europe, Week 34 hydro production is expected to remain stable: however, a significant decrease in precipitation levels is expected with levels decreasing to reach 53% of normal levels, after a tremendous Week 33 (150% of normal precipitation levels). In Week 35, precipitation and hydro production levels are expected to pick up, not inflows (forecasted at 68% of normal levels). Water reservoir levels are projected to decrease slightly at least until Week 35 reaching 69.4%, potentially going below the 69% level in the weeks coming after.

Biomethane market

The RGGO prices showed substantial gains all around, with both Crop and Waste mid-points increasing more than 6%. The UK 2021 and 2022 vintages are trading close to parity, with the later now considered the predominant spot product. The price for EU Waste (Certified) biomethane is now exceeds 40 EUR/MWh, and Uncertified Waste and Certified Waste are again at parity, both 29 EUR/MWh. Some trades were observed for Danish biomethane, but it remains to be seen if improved liquidity is a trend heading out of the Europe holiday period.

For access to the full Biomethane add-on please contact analyst@greenfact.com

Carbon market

Compliance market

The EUA Dec-22 contract continued its bullish trend over the curse of last week, going through resistance levels like a warm knife through butter. There are a few obvious bullish factors at play at the moment, mainly the combination of hot weather forecasted into September in large parts of Europe and the gas shortage acting as a main driver to elevate power prices. Higher temperatures mean higher energy need for cooling demand as well as critically Rhine river levels disrupting coal barges from transporting required volume of coal to power stations. Further, subdued nuclear generation in France with around 40% of the fleet under maintenance and high temperatures causing cooling water issues have a similar effect. Persistent dry conditions lead to low hydro dam levels, causing more carbon-intensive generation into the power mix. Meanwhile, EUA auction volumes remain reduced until end of August. All of these factors add towards a bullish cocktail which caused the Dec-22 contract to post a new intraday high at €99.22/t on Friday (19 August). Meanwhile policymakers in Brussels are out for summer break, meaning the policy and regulatory side remains quiet. Since last Thursday (11 August), the EUA Dec-22 contract increased by 9.7% week-on-week to close at €96.04/t on 18 August.

The German power Cal’23 contract continued to post new all-time highs on a daily basis amongst the critical gas supply situation, closing at €537.38/MWh on Thursday (18 August), 18.2% higher week-on-week. Meanwhile, the Dutch TTF gas front-month contract closed yesterday’s session at €241.004/MWh, up 15.8% week-on-week.

However, we see an increasing risk for profit-taking for EUAs as many of the above-mentioned bullish factors were already priced-in by the market some time ago and do not come as a surprise. The market neglects the industrial demand destruction scenario at the moment as well as the risk for an economic fallout as a result of the Russian invasion. We do expect the bullishness to fade over the course of the next days, a test of the €92.75/t level seems more likely than a continued bull-run. 

Voluntary market

The downward trend observed during the past weeks has come to an end, at least for the products we have an eye on. Volumes are back on the market and buyers are less reluctant, as per the risky environment that hasn't been improved (geopolitically and financially, for the most part). Furthermore, as for the GOs market, market activity is picking up due to the end of the summer period. Buyers are back on the market, and so is demand for credits!

According to our talks with some market players, the latest regulation releases (in India, specifically) play, in the eyes of some, a role as well. The GEO index spiked after the news that the country will be restricting exports of carbon credits until climate targets are met.

The Nature-based offset (December 22) experienced a hectic week. At the time of writing, it trades at $8.36 still, up by $0.53 compared to last week (+6.8% week on week). The spread to December 23 is still above $2 and comes closer and closer to $3 ($2.83, precisely).

The C-GEO future index December 22 increased dramatically at the end of last week, from $1.95 to $2.35 on Friday, after more precisions on the Indian new restrictions (original news pushed on the 8th of August). It has then lost ground throughout the week, going down until $2.19, now trading around $2.35, still above the level from the beginning of this week ($2.10). Demand is still strong according to a trader we've been in touch with.

Looking ahead

The market activity level did pick up last week, as one could have expected given the momentum (end of the summer break for Nordic countries and back to work for a lot of Europeans). We still expect the activity to increase in the next two weeks, as more European market players will come back from vacation.

This is one of, if not the week, with the highest increases in prices, across all recorded technologies and vintages. Even the 2021 vintage did increase (EU Hydro & Nordic Hydro). Overall, GO prices continued to witness tremendous gains in the midst of lower-than-normal precipitation, hydro reservoir, and production levels in Europe. Market participants continue to keep a special eye on Nordic Hydro reservoir levels being that they are the main GO exporters in Europe. This special eye tends to turn into big concerns, for some of the market players we have been in touch with. With decreasing precipitation levels predicted in the short term, there are (justified) fears that Nordic hydro production and their associated GO supply might be lower than expected, which could further support an upward trend in prices. Still, Nordic Hydro 2022, 2023 and 2024 vintages have already breached another record this week and are likely to continue. The 2023 Nordic Hydro is, as we predicted, above the 3 Euros/MWh (and closer than ever to the 350 Eurocents level), an unprecedented price that reflects well both the fears we've just underlined above and the growing interest for GOs as a whole.

The major question remains: will prices continue to increase, and if so, until which level? Given the trend that reservoir levels are following (for almost all regions), considering very low precipitation levels witnessed and forecasted, it is more than likely that prices will at least remain at that level, if not continue to increase. Some market players we have been in touch with are already speaking of the 400 Eurocents/MWh level that could be breached before the end of 2022: this seems, so far, a bit presumptuous.

Should you have any remark, question, or inquiry regarding this Weekly Overview or Guarantees of Origin & Carbon prices in general, feel free to get in touch at leo@greenfact.com

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