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Elcert prices sink as Swedish supply set to surge

(Montel) Nordic Elcert prices plunged 15% on Tuesday after a Swedish proposal to support new plants until 2030 stoked fresh concerns about an oversupply of certificates.

The spot contract traded last at SEK 160/MWh (EUR 15.55), down SEK 29 on the day, while March 19 was SEK 36 lower at SEK 155/MWh. The March 21 contract fell SEK 0.50 to SEK 52/MWh.

Prices tumbled after Swedish and Norwegian energy regulators said that new renewable projects that come online in Sweden by 2030 will be entitled to support through the joint Norwegian-Swedish Elcert scheme.

Although the proposal still needs approval from the Swedish parliament, market participants in the Elcert scheme were quick to respond – particularly since many had been expecting a proposal that would curb an expected glut of certificates.

“There is no doubt any more that there will be a huge oversupply in the market. This means certificates from 2020 will be basically worthless,” said Sigbjørn Seland, analyst at StormGeo.

The joint Norwegian-Swedish scheme aims to bring 46.4 TWh of new renewables online between 2012 and 2030, but the target is likely to be met within the next few years based on approved and constructed projects. Norway has already set a 2021 deadline for projects wishing to receive support.

Under the scheme, producers of renewable energy are eligible for one tradable certificate for each MWh they generate. The certificates are sold to consumers who are required to cover a certain amount of their power use from plants supported by the scheme.

Many market players had wanted subsidies to be stopped as soon as this goal was met in order to keep prices buoyant. Allowing an unlimited number of projects to receive support for another decade will therefore result in certificates swamping the market and prices dropping.

“This decision means prices will collapse from the second the market sees there will be no shortage of certificates,” said Marius Holm Rennesund, analyst at Thema Consulting.

A drop in prices will mainly affect those firms which invested in wind power in the early stages of the scheme and which had based project profitability on a much higher level of support than will now be the case.

Consumers to benefit
On the other hand, it will mean lower costs for consumers, which finance the scheme through a surcharge on their electricity bills.

“It seems the authorities are putting consumers first. They want to build as much new capacity as possible for as low a cost as possible,” said Odd Gunnar Jakobsen, analyst at Wattsight.

However, he warned that it was still unclear whether Swedish MPs would demand measures that curb the oversupply.

EUR 1 = SEK 10.29

Reporting by:
Olav Vilnes
15:31, Tuesday, 18 December 2018