The number of participants and the bidding volume both declined at the tenth auction of national emissions certificates (nEZ) today, 2 September, mainly because of the low allocation rate combined with high financing costs.
A total of 108 participants submitted bids for 508,183,972 national emissions certificates (nEZ). In each of the previous two weeks, 112 participants had taken part in the auctions. The total bid volume fell by around 4pc compared with the previous week.
As was the case at the eighth and ninth auction dates, the €65 rule was again not applied, meaning the allocation rate remained at just under 2pc. Market participants said that, given the very low allocation rate, participation in the auctions is becoming increasingly uneconomic because of the associated financing costs. This may explain the decline in the number of auction participants.
For example, a bidder seeking to acquire 100,000 nEZ through the auction must bid the maximum price of €65/nEZ. Otherwise, the bidder would be unlikely to secure any allocation. But because the allocation rate is now predictably around 2pc, the bidder would need to submit bids for a total of 5,000,000 nEZ. At the clearing price of €65/nEZ, this requires financing of €325mn. Interest costs accrue on this amount for the period during which the funds must be deposited.
As a result, some market participants are withdrawing from the auctions and instead plan to purchase additional nEZ from November onwards at the fixed price of €68/nEZ, plus any applicable fees.
