Electricity – Electricity Prices Are Driving Up Gas Prices
Electricity prices are rising: The active Dutch monthly contract for baseload electricity rose from approximately EUR 130/MWh to about EUR 175/MWh in one month. The increase in the TTF gas price, from approximately EUR 60/MWh to EUR 82/MWh, was a major factor in this rise.
Lower renewable generation increases pressure: The rollover of monthly contracts and seasonal variations are exacerbating the price increase. The share of solar power will decline in the coming months, while the growth in wind power cannot yet fully offset the price pressure. Higher coal prices are also a factor: the Rotterdam coal benchmark rose from approximately USD 125/metric ton to over USD 135/metric ton.
The EU ETS remains fundamentally strong: The December contract for the EU ETS is trading at over EUR 85 per metric ton, about 5% higher than a month earlier. High natural gas prices are making coal-fired power generation relatively more profitable, leading to an increase in coal production and demand for emission allowances. At the same time, a slowdown in industrial production could weaken industrial demand for allowances.
ETS Reform Carries Additional Price Risks: Negotiations on the ETS reform could create both upward and downward pressure. For now, the European Parliament appears to be more ambitious than the European Commission, in part by supporting the retention of the cancellation mechanism within the Market Stability Reserve.
The national CO2 tax is still in effect: Although the minority coalition wants to abolish the national CO2 tax, no legislative amendment to that effect has yet been passed. The previous link to approximately EUR 1.2 billion in European recovery funds now appears to be less of an obstacle, but the tax remains legally in effect until both chambers approve its abolition. For 2027, only an average ETS price below EUR 78.67 per metric ton in September and October would trigger a payment obligation; that scenario does not currently appear to be the most likely.
