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News Update
- APCR (Allowance Price Containment Reserve) auction to release 5 M allowances. In the upcoming APCR auction scheduled for November 8th, 2023, Washington Department of Ecology (ECY) will offer 5 million allowances from the price containment reserve at the Tier 1 price of $51.90. This is nearly 5 times the number of allowances offered in the last APCR auction held in August.
- Washington grants 17.4 M GHG allowances to utilities. Washington regulators increased the no-cost cap-and-trade allowance allocations for 10 of the state's electric utilities. 17.4 million allowances were distributed for 2023, with 16.3 million and 15.5 million allowances to be freely allocated in 2024 and 2025. The free allocation is determined by estimating the power generated by each utility and their retail demand which are submitted to ECY.
- Washington ECY to publish preliminary linkage analysis. The Department of Ecology (ECY) will release the preliminary analysis of statutory criteria that ultimately determines whether to link the state’s program with the Western Climate Initiative (WCI) market on October 12th, 2023. If the state chooses to link with the WCI, ECY will continue refining its criteria analysis to include regulatory changes that California and Quebec are planning to implement in 2024. ECY Director Laura Watson will decide on the matter later this month or in early November.
- Q4 auction sale to offer 9.6 M allowances. Washington state will offer more than 9.6 million allowances in the last quarterly auction of 2023, compared to the 8.6 million offered in Q3 which settled at the record high of $63.03. The Q4 auction will offer 7.2 million vintage 2023 allowances and 2.4 million vintage 2026 allowances.
Overview of ECY Allocations and Auctions
Fully expect 57 M allowances of Vintage 2023 this year with possibility of >64 M allowances if another 6.9 million are bought in the APCR auctions (5 M in November's APCR auction and potentially another 1.9 M in Feb ‘24 if the Q4 ‘23 auction settles over $51.90).
Auctions + APCR Totals
|
2023
|
2024
|
2025
|
2026
|
Auction #1 (Feb 23)
|
6,185,222
|
|
|
|
Auction #2 (May 23)
|
8,585,000
|
|
|
2,450,000
|
Auction #3 (Aug 23)
|
8,585,000
|
|
|
|
Auction #4 (Dec 23)
|
7,142,146
|
|
|
2,449,760
|
APCR #1 (Aug 23)
|
1,054,000
|
|
|
|
APCR #2 (Nov 23)
|
5,000,000
|
|
|
|
APCR #3 (Feb 24 - If Triggered)
|
1,946,000
|
|
|
|
Summary (As of 10/11/23)
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2023
|
2024
|
2025
|
2026
|
Allowances Allocated (Elec.)
|
17,489,792
|
16,395,501
|
15,532,469
|
11,330,996
|
Allowances Allocated (Nat. Gas)
|
8,059,631
|
7,452,993
|
6,846,354
|
6,239,714
|
APCR Allowances
|
8,000,000
|
|
|
|
Auction Allowances
|
30,497,368
|
|
|
4,899,760
|
Allowances (Total)
|
64,046,791
|
23,848,494
|
22,378,823
|
20,020,710
|
WCA Schedule
APCR Bid Guarantees Due |
October 27th, 2023 |
APCR Auction #2 |
November 8th, 2023 |
APCR Auction #2 Results |
November 15th, 2023 |
|
|
Q4 Auction Bid Guarantees Due |
November 24th, 2023 |
Q4 Auction |
December 6th, 2023 |
Q4 Auction Results |
December 14th, 2023 |
Offsets Update
- Offset developers in October are offering Vintage 2024-2026 offsets for Washington for delivery from 2025-2027 and initial indicative prices are 85% of the allowance price.
- 190,000 offsets were offered late in August by an ODS developer and traded in the $59-60 range when underlying spot allowances were trading $66.00. This puts offsets between 89%-91% of the value of offsets. California Offsets are currently valued at 80% of the value of allowances but have traded in the range 65% to 98% since program inception in 2013.
WCA Pricing Update
Pricing as of October 10th, 2023:
- Vintage 2023 – Oct. 2023 Delivery: $50.40
- Vintage 2023 – Dec. 2023 Delivery: $51.00
- Vintage 2023 Average Daily Price (Sept. 2023): $55.16
Market Update
- ‘23 allowance prices saw a significant drop in the first week of September, opening the month at $67.25 before seeing a sharp drop-off to $59.00 on September 6th, after ECY announced APCR auction in November would include 5 million allowances for sale at the TIER 1 price of $51.90. Prices continued their down trend, hitting $54.00 the next day and continuing in the $54.00 to $56.00 range over the second and third weeks of the month before finally sloping down to $53.00 during the last week to close out September.
- The vintage 2026 allowance spread with vintage 2023 is currently trading at the $2.00 level as companies can meet 70% of their 2023 emissions obligation with Vintage 2026s when the 70% of 2023 emissions is due November 1st, 2027.
- Open interest on the futures market increased by 26.5% from September to October, which was driven by ICE (Intercontinental Continental Exchange) increasing its market share to 50% after starting Q2 ‘23 at 0%. Nodal has a 50% share and many market participants expect ICE to continue to increase its share of the market given its incumbent position for environmental credit trading futures.
- The spot market settled at $50.40, which is significant as below the APCR Tier 1 price of $51.90 since March 24th, 2023. Compliance entities and trading shops are mostly on the sidelines awaiting more news of linkage and results of the APCR auction in November.
- Compliance entities are expected to start picking up some WCA if prices stay below the APCR $51.90 level in the next 4 weeks leading up to the APCR auction, which may prevent the market from continuing its hard freefall from $67.50 all-time high spot price on August 16th.
Figure 1. WCA Daily Transactions (Jan. 2023 to Present)
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WCA Pricing (Vintage 2023)
|
|
Prompt Delivery
|
Dec. '23 Delivery
|
Average Daily Price (YTD):
|
$ 60.26
|
$ 57.82
|
Average Monthly Price (September 2023):
|
$ 55.16
|
$ 56.29
|
2023 Highest Daily Price:
|
$ 67.50 (Aug. 16th, 2023)
|
$ 70.00 (Apr. 14th, 2023)
|
Figure 2. WCA Open Interest (July 2023 to Present)
Questions? Contact our team for more information: environmental@aegis-hedging.com
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