An expected mild winter in Germany will reduce demand for heating and power from the country’s combined heat and power (CHP) plants, according to new analysis Thomson Reuters Point Carbon, further weighing down the price of carbon on the EU’s Emissions Trading System.
Mild weather has already resulted in the lowest annual level of primary energy consumption in Germany since reunification in 1990. October saw temperatures average 3°C above normal and they are expected to continue to average at least 1°C above normal over the rest of the winter period.
“With such a mild winter, German CHP power production could average around 6 – 7% below normal between October and March”, said Clémence Carnerero, power analyst at Point Carbon. “The impact is more pronounced on total heat production, decreasing by approximately 5 TWh compared to normal.”
Over 90% of the CHP power production in Germany comes from fossil fuels, so the expected drop in heat demand will also impact carbon emissions regulated under the EU Emissions Trading Scheme, said Point Carbon. “Mild temperatures in 2014 have so far led to 32 million t decrease in emissions for the whole EU ETS and the warm winter would reduce another 3 million t in Germany alone,” said Yan Qin, carbon analyst at Point Carbon.
“We expect German power sector emissions to drop by 11% in 2014 year on year. And if the same drop occurs in other countries with large CHP shares, such as Denmark and Finland, utilities' hedging demand will be dampened, weighing on the carbon market. We estimate the bearish impact of a mild winter to be in the range of €0.25 – 0.5/tCO2 for EUA prices,” concluded Qin.
Written by Jonathan Rowland.