As we embark on a new year, we at CF Renewables are taking a retrospective glance at the intricate overview of the energy markets throughout 2023. A year marked by significant fluctuations, challenges, and pivotal shifts in various sectors, 2023 has undoubtedly left an indelible mark on the energy landscape.

 

Market Overview: Peaks and Valleys

Carbon Markets

EU Carbon (EUAs): A Rollercoaster Journey

- Performance: -16%

- Key Milestones: Started on a bullish trend, peaked over €100 in Q1, battled between bearish fundamentals and bullish technicals.

- Turning Point: October saw a paradigm shift with falling emissions, leading to record short positions. Prices broke €80, further sliding to €70.

- Current Scenario: Stabilization near €66, with support from compliance buyers hedging 2023 and 2024 requirements at 14-month lows.

UK Carbon (UKAs): A Waiting Game

- Performance: -52%

- Early Highs: Started strong at £85, disconnected from EUAs, awaited UK ETS reform response.

- July Impact: UKA prices drifted to around £50 upon the reform's muted response, coupled with the inclusion of additional allowances.

- Challenges and Support: Strong wind generation, industry struggles led to record lows near £30. Compliance buying brought some support.

 

Power & Gas: Europe's Winds of Change

- Performance: Gas markets saw a -56% decline (TTF).

- Mild and Windy: European storages remained high throughout 2023, supported by low Asian LNG demand.

- Volatility Moments: Supply concerns from Norway and Australia caused intermittent jumps in the market, emphasizing the importance of supply.

- Power Dynamics: Followed fuel trends, aided by improved French Nuclear Generation.

 

Oil: A Tale of Two Halves

- Performance: -1%

- H1 Focus: Prices followed macro factors, OPEC+ initiated production cut in April.

- H2 Trends: Prices trended higher from July to September, influenced by seasonal demand, voluntary Saudi cuts, and rising 10-year yields.

 

Voluntary Carbon Market (VCM): Navigating Scrutiny

- Performance: -36%

- Challenges: Scrutiny on corporate offsetting programs led to a decrease in average OTC carbon credit prices.

- Progress: COP28 brought advancements in higher standards, signalling potential VCM recovery in 2024.

 

Guarantees of Origin (GOs)/Renewable Energy Guarantees of Origin (REGOs): Shifting Dynamics

- Performance: GOs declined due to increased hydroelectric production, diminished demand, and a ban on importing European GOs to the UK.

- UK REGOs Volatility: Ban on EU GOs for FMD requirements resulted in a volatile period for UK REGOs, reaching over £25 per MWh in October.

 

Key Themes: Insights and Outlooks

EU Carbon

- Post-Christmas Drop: Despite an expected drop post-Christmas, EUAs quickly recovered, trading over €100 by February.

- Investor Shift: Long positions peaked at 20m, but by August, a shift to a short position occurred.

- Renewable Impact: Sustained renewable generation led to a 14% YoY reduction in thermal generation by September.

- Current Challenges: EUAs face challenges as short positions reached over 30m by November, reacting to a mild winter and falling gas prices.

 

UK Carbon

- Policy Dominance: Lack of government response and policy uncertainties dominated the market outlook.

- Reform Impact: UK ETS reform in July received a muted response. Additional allowances led to a bearish tone for the year.

- Market Dynamics: Strong wind generation, reduced need for gas-fired backup, and struggling UK industry contributed to prolonged market lows.

 

Gas & Power

- Mild and Windy Ending: Europe experienced a mild and windy end to the year, helping to keep storages high.

- Supply Concerns: Unexpected outages and maintenances in Norway, threats of strikes at Australian LNG plants, and low Asian LNG demand caused volatility.

- Power Trends: Power prices followed fuel trends and benefited from improved French Nuclear Generation.

 

Oil

- H1 vs. H2 Dynamics: H1 remained rangebound, while H2 saw a retracement amid concerns about demand growth, lower 10-year yields, and voluntary OPEC+ cuts.

 

Voluntary Carbon

- Market Challenges: Despite challenges, participants anticipate a regrouping in the Voluntary Market for future acceleration.

- COP28 Progress: Limited progress in international carbon markets but increased focus on strengthening the existing Voluntary Carbon market.

- Price Shifts: Average OTC prices across all project types decreased, signalling a necessary correction.

 

Renewable Energy Certificates

- GOs Performance: Decline influenced by various factors, including the ban on importing European GOs to the UK.

- UK REGOs Volatility: Ban on EU GOs led to a volatile period for UK REGOs, with significant price shifts.

 

In summary, 2023 was a year of challenges, adjustments, and adaptation. As we step into 2024, CF Renewables remains committed to providing insightful analyses and strategic guidance to navigate the evolving energy landscape. The journey continues, and we look forward to navigating it with you.