Karbone

Biogas and RNG markets are bracing for a flood of new supply as a wave of new facilities ramps up production in the opening weeks of 2025 after racing to begin operations before tax credit safe harbor provisions rolled off at the end of 2024. Recent discussions with market participants by Karbone Research indicate that roughly $800 million of new biogas and RNG Investment Tax Credit transfer sales reached initial close in late 2024 and early 2025, representing an additional 30% of ITC offers in an already record year. The rush to capture ITCs was partially predicated on the shift from the legacy Section 48 ITCs to the new “technology neutral” Section 48E credit. Facilities that hit “in service” marks before the end of 2024 were able to use the legacy credit, for which an established pool of buyers exists. The extra $800 million of ITCs represents a minimum of $1.6 billion in additional supply-side investment, which now must operate for the next five years to avoid “recapture” proceedings by the IRS. Different qualifying facilities will qualify for different treatment under EPA’s RVO, but prices for all D-codes have stabilized in the opening weeks of 2025 after a tumultuous close to 2024. For the underlying RNG product though, prices have remained at or below calendar-year lows in recent sessions, reflecting sustained oversupply and regulatory uncertainty. 

Fundamental price forecasts for D3 RINs prices imply that recent selloffs may be overdone. Karbone’s newly available D3 RIN merchant curve forecast shows that 2025 prices are likely to pop higher across all three base, low and high cases. Even the low case shows fundamental support at a floor 50 cents to a dollar per RIN over the general pricing level seen during the last Trump administration. Regulatory risk remains paramount, with every shift in the RVO outlook triggering price swings and fundamentals outlook revisions: Our supply-demand outlooks and balances show just how volatile this market will remain.

Karbone’s Commodities team will be at RE+ Northeast, February 12–13, 2025, at the Boston Convention & Exhibition Center. Connect with Jeffrey Baxter from our renewable energy desk to discuss the latest REC market trends and how Karbone is helping clients navigate the evolving Northeast energy landscape. See you there! #REPlusNortheast2025 https://lnkd.in/g37G3u8W

Prepare now for a big few months in the MISO power and capacity market. The below image is from a detailed market note issued by Karbone’s capacity desk: Reach out to us for access to the full report. As the MISO Capacity Auction approaches, all eyes are on the Fixed Resource Adequacy Plan (FRAP) deadline in March, a pivotal moment for market participants to secure their capacity obligations. In the lead-up to the auction, early indicators suggest a tightening in specific zones, echoing the dynamics seen in previous years. Conditions in Michigan (Zone 7) are being highlighted for this year’s auction. 

Happy New Year! Don't forget to submit your votes in the Environmental Finance Awards for 2025: The deadline is approaching quickly! At Karbone we're deeply honored to be nominated again in a number of categories. It is thanks to our amazing clients and counterparties that we can feature this work for another year. Link below: https://lnkd.in/ewdRMaVa

Can SCOTUS "fix" NEPA permitting obstructions? With permitting delays driving energy project development timelines to over five years, a case before the US Supreme Court has the potential to reshape the role of the federal government in clearing new infrastructure projects. The key question for energy market participants and investors is whether the justices rule broadly or narrowly. A broad ruling could send the new Republican Congress scrambling to rework the relevant laws, while a narrow ruling could ease permitting for a number of projects currently underway by limiting the scope of environmental review. Analysis of yesterday's oral arguments showed no firm indication of how the Court would rule, leaving project developers and financiers in the dark until the final ruling is issued sometime next year.

Karbone’s Commodities team is attending the UK REGO Day on December 5th in London! Meet with Michael Keogh to discuss the latest REGO trends and how we’re helping our clients navigate this evolving market. See you there! #REGODay2024 #EnergyProcurement

Check out Karbone insights on trade at the intersection of energy and AI featured at S&P Global

D3 RINs have gone on a wild ride in trading sessions this week, crashing lower on November 13 as traders reversed course on what had otherwise been a surprise post-election pop in some RINs pricing. Fundamentals blended with politics in the tightly balanced pricing environment for late 2024 D3 RINs trade to create a 10+ standard deviation volatility event. Specifically, an unexpectedly early regulatory filing to reduce 2024 demand created a rush for exits; D3 prices plunged, with the bid removed by uncertainty about an accelerated EPA ruling merging with general bearishness on the Trump administration's expected granting of small refinery exemptions. Most energy transition markets still operate at more of a remove from direct federal government management, but natural volatility can be significantly exacerbated by sudden political shifts and regulatory opacity. To stay up to date on pricing and fundamentals for both energy and environmental attribute markets, be sure to get access to the Karbone data hub for qualified energy market participants

Environmental markets eyeing a Trump presidential election victory are taking solace in the sustained commitment of states to pricing and managing environmental attributes. Action in environmental commodities is already largely based on state and regional programs, with federal programs in recent years more often based on a blend of tax credits and long-range targets rather than compliance pricing programs. Millions of RECs traded OTC in those years, with growth illustrated by on-exchange trade at ICE below. The history of the last Trump administration was characterized by a contradictory revival in state-level compliance market ambitions, even as federal programs were either slowed or challenged. On the compliance side, participation and outright price levels continued to surge in the US through the first Trump presidency. Pennsylvania, which as with this year voted for Trump in 2016, boosted its compliance program ambitions significantly in 2017, and prices for related RECs contracts have climbed since. The voluntary environmental attributes market also picked up during the Trump years, as corporates concerned about the lack of US policy in an emissions-constrained global economy built positions and expertise through voluntary mechanisms. The forward price curve for a number of environmental commodities tracked by Karbone remained in contango on the eve of the US election, and outright prices for many markets barely budged through the closing days of the tight campaign. National CRS-listed voluntary RECs dipped slightly at the front and back ends of the curve since mid-October, but the 2029-2033 strip held steady.