The referendum in the UK in favor of leaving the EU caused severe disturbances on the energy markets in Europe. Most prominently the prices for power and CO2-certificates fell drastically.
On the German future market for power delivery for the next years, the decision of the referendum led to price drop of 7.4 percent. Being the European benchmark for future power prices, this drop also has repercussions for other European power markets. The front-year contract dropped as low as EUR 25.80/MWh, the biggest day-on-day loss since at least 2002. This translates to a price drop of roughly EUR 1.5/MWh. Figure 1 depicts the price curve and indicates the Brexit-Effect. In part this decline is also due to falling commodity prices for coal and oil in the wake of the referendum’s outcome.
Figure 1: The influence of the Brexit on the German future power contract for 2017 (Source: Montel, own edit)
In addition, EU carbon allowances also experienced their lowest level in four months and plummeted by 17 percent. This translates into the strongest downward reaction for carbon allowances in one day since 3 years. The price drop of roughly EUR 0.7 and the current price level of about EUR 5/t are shown in figure 2. The decline in CO2-prices resulted from the uncertainty if power companies in the UK are able to close their positions in the EU trading system. These positions account for about 10 percent of the 2 billion surplus certificates according to Energy Aspects.
Figure 2: The influence of the Brexit on the future market for European carbon allowances (Source: Montel, own edit)
The chance for higher volatility of prices on energy-based future markets due to the Brexit decision increases and the energy sector is by no means certain on how the Brexit will further influence commodity and thus energy prices. Several traders even expected higher power prices in case of the decision of the UK to leave the EU. However, the current market prices show an entirely different picture.
Apart from the political consequences of the Brexit, the decision of the UK to leave the EU will also keep the energy sector busy for quite some time.
