Analysts: Falling allowance prices could lower energy prices and curb investment in Czechia

Falling emissions allowance prices could lower energy prices for consumers in the short term, but if the trend persists over the long term, they could also curb investment in modernising the energy sector. That is according to comments by analysts to the Czech News Agency (ČTK). In recent weeks, the price of emissions allowances has fallen to around 53 euros per tonne of carbon dioxide emitted. Last year, the price approached 100 euros per tonne.

According to Capitalinked.com analyst Radim Dohnal, the current drop in the price of emissions allowances is partly a cause and partly a consequence of falling gas prices. „Low gas prices mean less coal is burned and more gas is used to generate electricity. Generating one megawatt-hour of electricity from gas requires considerably fewer allowances than generating one megawatt-hour from coal. So the price of allowances falls,“ he said. Gas prices themselves are falling, he added, because of ample supply on the market and a relatively warm winter.

XTB analyst Jiří Tyleček sees the main factors behind low allowance prices as a higher-than-expected supply, the current slowdown in industrial production, weak economic growth in Europe and an exceptionally warm winter. „However, I see these factors as mostly short-term,“ he said.

According to Tyleček, lower allowance prices could bring savings on energy costs of a few per cent. „It is estimated that generating one megawatt-hour of electricity in Czechia produces approximately half a tonne of carbon dioxide, which at current allowance prices amounts to approximately 30 euros. At the end of the year, it was approximately 40 euros. The average household consumes around 3.5 megawatt-hours, so the theoretical savings over this period could amount to several hundred crowns a year,“ he said. He also noted that it depends on when and at what price a given producer bought the allowances, and on its pricing policy.

„This discount is not significant on its own, but combined with falling electricity prices, household savings this year could reach several thousand crowns,“ Tyleček added.

Analysts also point to a possible impact in the form of reduced funding for new construction, since one of the functions of emissions allowances is to encourage the adoption of cleaner energy sources. Dohnal noted in this context that low allowance prices are bad news for the profitability of any new electricity source, whether nuclear, renewable or otherwise. Another consequence could be lower revenues for the Modernisation Fund, which finances new renewable energy sources.

Tyleček also acknowledged that there could be less incentive to build cleaner energy sources. „However, the energy sector is a behemoth that may gradually shift slightly towards the market over the years, but is certainly unable to respond to short-term fluctuations. Investments in green energy sources are long-term, and could be affected in some way only if allowance prices remain low over the long term. Personally, however, I do not believe we are now facing a prolonged period of low allowance prices,“ he added.