Energy Markets: Europe's carbon and power markets in turmoil – Rabobank

The European Union’s carbon market has started the year strong, with prices rising above €82/t CO2e on several occasions after falling to an average of €67/t CO2e in 2024. A wind lull that swept over Europe so far this winter has lifted demand for fossil fuel generation and, with it, demand for carbon allowances, Rabobank's Energy Strategist Florence Schmit noes.

EU carbon market starts the year strong

"This shortfall in renewables, particularly in Germany, alongside higher gas prices, has lifted power prices across Europe above €100/MWh in January and reignited debates about the merits of interconnectors in some parts of the continent."

"Europe’s benchmark gas prices closed above €50/MWh on more than two days in January, as quicker-than-anticipated storage withdrawals alongside threats to LNG flows from the US to Malaysia have amplified supply concerns."

"The current high-price environment for power markets will ease once wind levels return and solar starts to make up a higher share of the power generation mix. Yet higher forecast gas prices for this year also lift our outlook for power markets. We forecast German baseload power prices to average €90/MWh and Spanish power to average €66/MWh in 2025."