Market outlook December 2023
Since the end of August, the electricity market for annual products has moved downwards week after week. The reasons for this include the favourable gas supply situation and low prices for emission certificates. The outlook is neutral - although colder February temperatures may be on the horizon.
December 2023
While the base for Cal 2024 was still trading at EUR 146/MWh on 22 August, it had lost around 68% of its value by 6 December, breaking through the EUR 100 mark and closing at EUR 96.64/MWh on St. Nicholas Day. This is the lowest value since January 2022.
At least if we look at the last three weeks, this is an astonishing development at first glance. In the past, temperatures far below normal levels and a DAX that climbs higher day after day were often a reason to support the energy market at the long end and drive it forward. Instead, the electricity market in particular slipped further and further downwards for the following years and gas prices are unimpressed by the cold temperatures. The THE annual product 2024 has lost around EUR 16/MWh since October: From a level of EUR 57/MWh, it closed at EUR 41/MWh on 6 December.
Reasons for the low electricity and gas prices
- We are coming from very high levels and, despite this phase of weakness that has lasted for months, we still have prices for the front year and subsequent years of over EUR 90/MWh. Electricity is not cheap.
- The expansion of the LNG infrastructure in Germany is taking effect and this is accompanied by an improved supply situation. Together with the planned filling of storage facilities and lower gas consumption compared to recent years, the situation on the gas market is currently fundamentally robust. The word "gas shortage" has disappeared from the news. Gas spot prices traded between EUR 40/MWh and EUR 50/MWh in November; these are levels that were also occasionally seen in the late summer of 2023.
- Prices on the EUA market have collapsed. Demand is weak here and news from RWE, which is forecasting lower coal-fired power generation for 2023 and will have to hedge fewer EUAs accordingly, is stifling any price increase.
- Added to this is a temperature forecast for the second half of December that is above normal and, in addition to hopes of a white Christmas, is also diminishing the bulls' hopes of rising prices. In the past, milder temperatures have also led to increased wind feed-in, meaning that the quotations for the last two calendar weeks are far below the current spot prices.
The coal market API2 for 2024 has played a minor role in the price trend in recent months. The tonne is currently trading at USD 111 and is therefore in the lower range of the last three months.
Neutral outlook
The outlook is currently neutral. As things stand, the markets appear to have bottomed out and are consolidating. Initial long-term weather forecasts for February 2024 suggest that a very cold second half of winter in February is possible. However, these forecasts are still very uncertain and can only serve as a warning that winter could still come back with a vengeance even if the second half of December is mild.
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