CO2 certificate prices are falling – Finance Minister dismayed!

The year 2024 suddenly and basically unexpectedly brings a reduction in the price of CO2 certificates – emission fees. What was first skyrocketed (even temporary prices of more than 100 Eur/ton) is now going down by almost 50% (recent EUA – certificate rates are 50-55 Eur). As always, it’s a combination of many factors, but most importantly, lower industrial production (so lower energy demand and lower emissions from power generation) and faster decarbonisation than expected are giving a solid boost to the discount. Previously, it probably speculatively inflated emission certificates.  Here, it should be added that with the prediction that their price is worse than the weather in Zakopane – not long ago, there was supposed to be a price path from 20-30 Eur/ton and just 100 Euro, but somewhere around 2040 or even 2050. The ETS market is clearly poorly conditioned and speculative – fluctuations greater than on Bitcoin (but in the European Commission, they are hardliners against restrictions on the purchase of certificates by the financial market – because realistically, why should they – explaining with liquidity). The EU mechanism with the sonorous name Market Stability Reserve does not stabilize anything (by the way, it was created solely to raise prices) and is activated at some bizarre moments (e.g., just last month to raise some money for REpowerEurope – the question is why not a year or two earlier for market stabilization).  As a result, we have the most aggressive speculative mechanism in the world – if you like risk (and price fluctuations), then you should invest (in order of the most conservative choices) – flipper apartments, exotic wine and cigar funds, the Turkish lira, blood diamonds from Africa, cryptocurrencies (especially the new ones) and finally just funds playing on CO2 certificates.  While everyone can do what they want with their money, the drop in CO2 prices is also becoming a nationwide problem, causing headaches for the Finance Minister. Up to now (all governments) have recognized that the CO2 fees flowing into national budgets should be criticized for their impact on high energy prices, but at the same time, coolly consumed to fill budget holes at will (having nothing to do with energy) at most by pouring some pennies into good PR jam “My Current” programs.  With the sudden rise in prices, CO2 has in recent years fed the budget with sums of 20-25 billion zlotys a year (which does not help develop concern for needy citizens), and here recently at auctions, Poland sells its permits (then repurchased by power plants) at only 54 Eur/t. There is a danger that the budget will get several billion less.  So what can be done in such a situation? Should excise taxes on energy be raised?

Polish School of Mathematics in applications for the gas tariff – it’s getting cheaper, actually it’s fixed, but in practice, it’s getting more expensive.

It’s something for those who think the math needs to make more sense and prove that there’s nothing like good regulation. The President of the ERO has just approved a change in the tariff (price list) for gas for residential customers – prices dropped by about 8% from 318 to 291 zlotys (per MWh). Interestingly, the customer doesn’t pay that much because the price is “frozen” by special regulations and is PLN 200. Seemingly lovely that it’s cheaper, but if you click on the pages of the Polish Power Exchange and see the price of gas wholesale, we have today 127 PLN/MWh, so even with 30% margins (not bad), the price should be about 165 PLN/MWh.  Be that as it may, we have cheaper and even more expensive thanks to regulations. All, of course, due to the fact that there is currently no real free market in the gas supply (and energy). Gas fuel is sold mainly by PGNiG (which has more than 80% of the retail market), which probably contracted the gas for itself beforehand (in long-term contracts) at high prices (hence this ERO tariff) and would like to sell more expensive, but has a frozen price (so it gets compensation) despite the fact that now gas can be bought much cheaper (even than this frozen price), but there are no competing companies to do so in the market. Thus, we have once again proven the superiority of Easter over Christmas, i.e., if we think we can skillfully regulate prices prescriptively, it will be better (the Roman emperor Vespasian already tried this). Once the competitive market has been murdered, and with the heavy dominance of a key supplier, the possibility of market-based pricing is analogous to trying to drive a TIR through the streets of Old Town – there will always be a wedge. Nevertheless, it should be appreciated right now that, according to information, the relevant Ministries are working hard on further price regulations and a new concept of “freezing” in the second half of the year.  The free market itself… may appear in the rules around 2025.

Nuclear reactors in Poland—big on YES, small on NO, I know, and as always, the problem is with the financial model. 

There are no official documents and energy strategies (Ministries are changing for now), but from preliminary interviews and publications, one can already see some directional solutions. The Plenipotentiary for Infrastructure (sensibly) shows a rough strategy for the future. Large nuclear – first power plant – investment will continue (so let it build and delay as little as possible). Small nuclear (SMR) – according to the current state of the market – look at commercial deployments and buy when it works and will be available on the market (unlike the 7, 21, and 70 plans – no one has kept up with how many of these small reactors were supposed to be, but it is certainly known that we pay).  Unfortunately, the technical and rational approach collides with one thing – the problem with financing. This Achilles’ heel of the Polish nuclear program hurts especially recently because world, European and Polish wholesale energy prices – are low as they have not been for a long time. With spot levels almost already 300 PLN/MWh and annual contracts for 2025 450 PLN/MWh (still falling), with record low gas prices and cheap CO2 allowance costs – it is very difficult to show an optimistic (and affordable) price for a differential contract for nuclear power (Hinkley Point C in the UK at about 550 PLN/MWh and so reports no money and the need for additional subsidies).  So, it promises to be a do-over – the financial model for the reactor… will be available… as early as next quarter.