Mariusz Andrzejewski, Patryk Dunal, Łukasz Popławski
Impact of changes in coal prices and CO2 allowances on power prices in selected European Union countries – correlation analysis in the short-term perspective
Číslo: 1/2019
Periodikum: Acta Montanistica Slovaca
Klíčová slova: Dark Spread, price of power, price of coal, cost to coal mines of environmental charges, CO2 emissions allowances.
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Anotace:
Spreads on power markets serve as indexes that allow assessing the future profits of electric utility companies. The spread applicable
to power generated from coal, including the cost of CO2 allowances and power plant efficiency, has been termed Clean Dark Spread (CDS).
A CDS index may serve at least two basic functions. On the one hand, it provides information on the future prices of power and profitability
of power generation. On the other, it facilitates hedging to be applied not just by power plants but also by other entities operating on the
market. Following deregulation of energy markets, energy has started to be traded on the exchanges and trading facilities, which is also
reflected on Polish Power Exchange operating on the Polish market. Following the introduction of the European Union Emissions Trading
Scheme, Polish energy generating companies hedge the prices of CO2 emissions allowances with the use of foreign trading facilities,
especially EEX. Since two out of three CDS constituents are traded on trading facilities, it seems fully substantiated also to introduce
quotations of coal prices in Poland. This paper is aimed to present the crucial aspects of shaping coal prices in Poland and on international
markets as well as to examine the impact of changes in coal prices and CO2 emissions allowances on shaping power prices based on a
comparative analysis between Germany and Poland. This study also includes the costs incurred by the coalmines by paying environmental
charges on waste resulting from their economic activity.
Nonetheless, it should be noted that those charges do not affect the financial result. The analysis of the correlation has shown that the
price of electricity on the Polish market is positively and strongly correlated both with the price of coal and the price of CO2 emissions
allowance, the latter correlation being stronger. Equally worth noting is the strong correlation between coal prices in Poland and the prices
of CO2 emissions allowances. With regard to the confirmed but rather not very strong positive correlation between steam coal prices on the
Polish market and energy coal prices in the ARA zone, it should be noted that there is no liquid index in the domestic market, which hampers
efficient portfolio management of the spread on energy production by the coal energy sector
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to power generated from coal, including the cost of CO2 allowances and power plant efficiency, has been termed Clean Dark Spread (CDS).
A CDS index may serve at least two basic functions. On the one hand, it provides information on the future prices of power and profitability
of power generation. On the other, it facilitates hedging to be applied not just by power plants but also by other entities operating on the
market. Following deregulation of energy markets, energy has started to be traded on the exchanges and trading facilities, which is also
reflected on Polish Power Exchange operating on the Polish market. Following the introduction of the European Union Emissions Trading
Scheme, Polish energy generating companies hedge the prices of CO2 emissions allowances with the use of foreign trading facilities,
especially EEX. Since two out of three CDS constituents are traded on trading facilities, it seems fully substantiated also to introduce
quotations of coal prices in Poland. This paper is aimed to present the crucial aspects of shaping coal prices in Poland and on international
markets as well as to examine the impact of changes in coal prices and CO2 emissions allowances on shaping power prices based on a
comparative analysis between Germany and Poland. This study also includes the costs incurred by the coalmines by paying environmental
charges on waste resulting from their economic activity.
Nonetheless, it should be noted that those charges do not affect the financial result. The analysis of the correlation has shown that the
price of electricity on the Polish market is positively and strongly correlated both with the price of coal and the price of CO2 emissions
allowance, the latter correlation being stronger. Equally worth noting is the strong correlation between coal prices in Poland and the prices
of CO2 emissions allowances. With regard to the confirmed but rather not very strong positive correlation between steam coal prices on the
Polish market and energy coal prices in the ARA zone, it should be noted that there is no liquid index in the domestic market, which hampers
efficient portfolio management of the spread on energy production by the coal energy sector