RepuTex today published its Outlook for the sixth ERF auction, to be held on December 6-7.
In line with auction five, we believe negative sentiment will again undermine the sixth ERF auction, with low participation likely to result in low volumes of abatement against initial auction events. We anticipate a small uptick in total auction volumes, albeit from a low base set in auction five, however negative sentiment is expected to again weigh down the market. Inversely, this is expected to flow through to higher contract prices, with modelling indicating a broad spread of contract prices is likely. Simulations suggest a high percentage of abatement may be contracted by the Regulator, extending the top of the auction bid stack, leading to a number of bidders contracting at prices well above the average price disclosed by the Regulator.
This suggests positive outcomes for participants, with conservative strategies at some risk of leaving notable upside on the table as the shape of the auction bid stack changes around the 50 per cent threshold.
The RepuTex Team
Australian Emissions Markets