Electricity, carbon prices plummet as coronavirus wounds EU economy

Market participants pushed prices of electricity and emission certificates lower at the main exchanges in Europe while widespread shutdowns caused a decline in carbon and other greenhouse gases released by the industry because of restrictions aimed at slowing the spread of the coronavirus.

Statistical data show a global recession is close as the pandemic crippled transportation, services and healthcare, just to start with. The economic freeze particularly hit market prices of electricity and carbon dioxide – namely, shutdowns in the industry over the risk of the acceleration in the spread of the coronavirus derailed power demand.

Emissions allowances lost two fifths of their value since the start of the year and most of the plunge occurred in the past few weeks. Prices of the most popular contracts have halved since July, when they finally reached what is thought to be a serious cost for companies.

Electricity prices go below zero

The day-ahead power price in Germany went negative on March 22, briefly touching minus EUR 55 per MWh. On that day, the electricity and carbon markets were disrupted by strong volumes in wind parks and solar power plants due to favorable weather conditions, on top of the obvious coronavirus impact.

Europe’s largest economy is particularly vulnerable as the share of industrial electricity consumption has been at a record 44%. It means the fall in activity, like the current suspensions in the car industry, leaves power producers with excess capacity and generation or downside pressure.

Germany also exports vast amounts of power. Year-ahead prices dropped by a quarter year to date, while France saw a decline of 19% and Italian market participants pushed them 21% down.

Coal sector cheers

A decline in expenses on carbon certificates suits coal miners and power plants using the harmful fossil fuel. The shift threatens to make projects utilizing renewable sources less competitive, which should also spill over to private and public funding for research and innovation in the segment. Hydrogen has been widely touted as the next wave in clean energy.

Banks and other parts of the corporate sector have been doing mostly well in the past years in stress tests and estimates on possible shocks. And yet, none of them may have calculated the impact of the sudden blow and shutdowns across the industry they are currently experiencing.

Furthermore, they must weather a drop in household spending and purchase plans as well as the fact that a substantial share of consumers may not be able to pay utility bills. Lower energy prices translate to weaker revenues and cancellations of investment projects.

Utilities in anticipation of state support

For instance, Greece’s state-owned power producer PPC, also known as DEI, had just stabilized its balances after the financial crisis, and yet it is still trying to collect EUR 2.5 billion in debt from customers. A lot of firms among them will go under after this.

On the flipside, carbon credits have rebounded this week, together with stock markets. They earlier dipped under EUR 14.5 per ton to their lowest point in almost two years. Investors apparently gained some confidence due to massive stimulus announced by the United States, the European Union, other countries and central banks. And PPC still depends on coal, regardless of an ambitious transformation strategy.

Of course, the slowdown in economic activity lowered pollution on an unprecedented scale as manufacturers and transportation emit much less greenhouse gases.