Engie: Carbon floor impact on power prices yet to pan out, France to push for EU-wide corridor

The chief executive of one of France’s largest energy companies said on Friday it was too early to give any accurate indication of the degree to which the country’s carbon price floor will support wholesale power prices.

The statement came in the immediate wake of intense volatility across European markets in the wake of Monday evening’s carbon floor announcement.

“We saw an immediate positive reaction in the markets, not only in France but also in Germany and the Netherlands,”Engie chief executive Gerard Mestrallet said on Friday during a presentation of the group’s quarterly results in relation to sharp price increases.

Mestrallet is member of a three-man commission appointed by the French government to look into measures to strengthen carbon price signals at a national, European and global level.

The three-man commission will submit a report in July, Mestrallet said, adding that France would be introducing a carbon floor, while the intention for an EU-wide measure was an evolving price corridor – a price ceiling, as well as a floor.

“Our interest is to get something European,” said deputy executive chief Isabelle Kocher. “The impact on wholesale power prices will be much less if it’s only France, as the marginal French price is made by gas. The price increase would not be massive but would still spread to other markets,” she said.

Mestrallet added that the price impact this week in less closely linked markets such as Italy and Spain showed that wider measures were already being anticipated.

Fuel switching

There has been no official precision but a French price could be fixed at €30.00/tonne CO2 equivalent, as such a price level would at current fuel prices be close to allowing fuel switching and would have a positive impact for emissions from power generation, he said.

The French measure is expected to take the form of an additional tax on EU carbon certificates, which would vary according to the difference between the European carbon price and the French price floor.

However, the immediate bullish impact largely reversed on Thursday, with several power traders saying the spike had been premature.

Having traded at a high of €32.55/MWh on Tuesday, The French Cal ’17 Baseload contract last traded back at €30.45/MWh on Friday morning, after prices came down sharply during the previous session.

Friday morning’s price was a little higher than Thursday’s close, indicating a degree of stabilisation following the volatility in the wake of the initial carbon floor announcement.

One issue for France could be the EU’s take on its unilateral measure. “It will be quite impossible to reach unanimity [on a price corridor],” Mestrallet said, indicating that even the French measure could also run into trouble if the EU commission judges it non-compliant with competition rules.

One power trader commented on Thursday: “We can expect the markets to remain volatile as any further news of the French measure will trigger price spikes and sudden reversals.” joachim.moxon@icis.com