Understanding Commodity and Index Figures
Power: ENERGIZED tracks five key European power markets: UK, Germany, France, Spain and Italy, to give a representative overall view. Although closely related, each national power market has its own distinct dynamics, with different sources of supply, grid characteristics, demand patterns and physical connections with other markets (e.g. via interconnectors). There are many different power contracts from spot to long-dated. The price tracked ere is the front-month (i.e. next month) futures contract, to reflect current market sentiment and enable like-for-like comparison.
Carbon: These figures show the price for emitting a metric tonne of carbon dioxide or equivalent greenhouse gas (CO2e) in the relevant jurisdiction - effectively the additional regulatory cost of carbon-intensive vs low- or zero-carbon activities.
EU Allowances (EUAs): priced in €/MT (euros per metric tonne), put a price on EU carbon emissions in support of the bloc's goal of climate neutrality by 2050, incentivising investors and industry to transition away from high-emissions activity. Under the EU Emissions Trading Scheme (EU ETS), the first and largest emissions cap and trade system, companies with excess EUAs can sell them to others who need them to comply with their cap. The scheme covers ~45% of EU emissions and total available allowances are planned to be gradually reduced over time. The price shown is for the futures contract for December delivery.
UKAs are the equivalent mechanism in the UK, which were introduced as a separate market on 1 January 2021 following the UK's withdrawal from the EU. They work essentially in the same way as EUAs and the price shown here is for the equivalent futures contract.
Gas: Although ENERGIZED does not track gas companies, wholesale gas prices as reflected in these benchmarks remain highly relevant as an input to electricity production and strong influence on electricity prices. Comparing gas and electricity prices is a key element of consumer investment choices such as deciding between gas boilers and heat pumps. In Europe, gas demand is in structural decline but remains a key factor. Like power, gas prices vary by market and delivery date, so to provide a suitable overview, ENERGIZED tracks front-month gas futures, i.e. today’s price for gas delivered one month ahead, as a representative reflection of market dynamics. This is distinct but related to day-ahead prices (which can be more volatile) or year-ahead delivery. Gas prices are also traditionally seasonal, typically higher in the winter when demand peaks and lower in the summer (when heating demand is lower and renewable output is also higher, reducing suppressing demand for gas generation).
Title Transfer Facility (TTF), priced in €/MWh, is a virtual trading point for gas in the Netherlands, which has been historically a significant gas producer, consumer and importer of liquefied natural gas (LNG). As Europe's biggest gas benchmark, which offers a useful reference price point for gas prices across the continent.
National Balancing Point (NBP), priced in £p/therm, is likewise a virtual trading point for gas in the UK, which is typically highly correlated with TTF, albeit there have been notable divergences for periods in recent years. NBP effectively represents the wholesale price of gas in the UK and so is a key driver of retail gas and electricity prices.
Henry Hub (HH), priced in $/MMBtu (million British thermal units) is the principal benchmark and representative headline figure for US gas prices. Unlike TTF and NBP, it is a physical distribution hub where several gas pipelines converge at Erath, Louisiana. Given the scale and nature of US energy markets, HH prices can vary considerably versus contemporaneous gas prices at other locations across North America. As the most influential gas benchmark in the US, HH is used to set standardized gas spot and futures contracts at the New York Mercantile Exchange.
Japan-Korea Marker (JKM), also priced in $/MMBtu, is a much-used reference price point reflecting the traded price of LNG delivered into the north-east Asia region, which is historically one of the key LNG import markets globally. It does not have a designated physical delivery point. Its denomination makes it readily comparable with Henry Hub, illustrating the difference between domestic US gas prices and internationally traded LNG on the other side of the world.
Indices:
European Renewable Energy Total Return Index (ERIX) is a measure of the financial performance of the top 10 largest European renewable energy firms active across solar, wind, hydro, biofuel, marine and geothermal energies. The index is based on total net returns, denominated in Euros, reviewed every six months and rebalanced every quarter.
S&P Global Clean Energy Index (CLEN) measures the performance of companies in global clean energy-related businesses from both developed and emerging markets, with a target constituent count of 100. It aims to track companies that produce energy from solar, wind, hydro, biomass and other renewable sources, plus other clean technology companies. The weighting is based on modified market capitalisations and rebalanced semiannually (April and October). As of 30 Sep 2024, the top 10 constituents were: First Solar (US), Enphase Energy (US), Iberdrola (ES), Consolidated Edison (US), Vestas (DK), EDP (PT), China Yangtze Power (CN), Orsted (DK), Suzlon Energy (IN), Chubu Electric Power (JP). The main sector weightings were 60.7% utilities, 18.7% IT, 18.2% industrial. The top 3 country weightings were US 33.5%, China 9.8%, Denmark 9.1%. The average market value of companies in the CLEN index is around $8bn, collectively representing around 0.7% of the $120 trillion global equity market.
MSCI Global Alternative Energy Index includes developed and emerging market large, mid and small cap companies globally that derive 50% or more of their revenues from "Alternative Energy" products and services, i.e. alternative to fossil fuels. As 30 Sep 2024, the top 10 constituents were: First Solar (US), Vestas (DK), Enphase Energy (US), Orsted (DK), Adani Green Energy (IN), Verbund (AT), EDP Renovaveis (ES/PT), Nextracker (US), Northland Power (CA) and Ormat Technologies (US). The main sector weightings were 43.6% utilities, 28.4% IT, 26.5% industrial. The top 3 country weightings were US 37.7%, Denmark 20.1%, China 10.6%.