MARKET COMMENTARY

Falling leaves, pumpkins on windowsills, and dropping temperatures – autumn is here. Usually, the first chilly spells of weather result in rising energy prices due to the heating load in residential buildings. However, there is no sign of this in September, with global LNG supply extinguishing all bullish signals. More on this in the September market assessment. Before that, it is worth taking a look at two reports that are of central importance for the development of the energy transition. On the one hand, the German federal government published its latest Energy Transition Monitoring Report. On the other hand, the International Energy Agency (IEA) presented its Global Hydrogen Review 2025. Both analyses provide important insights into the status quo and challenges of the coming years – both at the national and global level.

The German monitoring report was awaited with excitement and skepticism in the industry. There were fears that Federal Minister for Economic Affairs Katharina Reiche (CDU) could use the report to slow down the energy transition. These concerns proved unfounded: Reiche reaffirmed the goal of covering around 80 percent of electricity consumption from renewable energies by 2030 and described the progress made so far as a “clear success.”

The key points:

• Reform of subsidy mechanisms; fixed feed-in tariffs for small-scale installations are up for discussion.
• Synchronization of grid expansion, generation capacities, and decentralized flexibilities such as storage.
• The future consumption forecast has been revised downwards: instead of the previous 750 TWh per year until 2030, the report now anticipates only 600–700 TWh.
• Digitalization, a uniform electricity price zone, and research and innovation are to be promoted. The report also calls for more pragmatism when it comes to the ramp-up of hydrogen.

In our view, the abolition of fixed feed-in tariffs in particular makes sense: the increasing negative electricity prices on the spot market show that the incentives are no longer in line with market conditions. Similarly, greater control over the spatial distribution of generation plants is to be welcomed, as grid costs have not been differentiated to date. However, the key factor is the reduction in consumption expectations: The correction could have direct consequences for the expansion of renewables, as subsidy volumes will be geared to lower demand in the future. The background to the reduction in consumption is stalled hydrogen projects and uncertainties about industrial demand. However, we firmly believe that the original plans for hydrogen were overly ambitious and economically difficult to implement.

The IEA's Global Hydrogen Review perfectly complemented this with its assessment of hydrogen as an energy source. The conclusion: a wave of project cancellations and cost increases has noticeably dampened expectations for 2030. Instead of 49 million tons of hydrogen per year, only 37 million tons are now forecast – a decline of almost a quarter. In fact, production is likely to be even lower, as many projects are on shaky ground. Nevertheless, capacity is expected to increase more than fivefold by 2030: from the current 0.8 million tons to over 4 million tons per year in projects that have already been secured. An additional 6 million tons would be possible if governments were to resolutely push ahead with demand mechanisms and infrastructure. However, the IEA sees only moderate to unclear potential for realizing the remaining 27 million tons.

Competitiveness remains a key hurdle: falling natural gas prices and rising costs for electrolysers are worsening economic viability. The CEGH public GreenHydrogen Index validates this picture. A 10-year pay-as-produced PPA is indexed there at €148/MWh, and the forward indices until 2028 range between €130 and €170/MWh. Only technological advances and greater integration of renewable energies could close the gap by 2030.

Incidentally, China is the main developer of hydrogen electrolysers, accounting for 65 percent of global capacity. According to the IEA, manufacturers outside China are under financial pressure due to rising costs and slow market penetration. Reading this, a parallel comes to mind: if Europe sees hydrogen as the technology of the future, then China seems to be following the same path as it did with PV modules. After initial efforts by Europe, China now dominates this business. However, confidence in hydrogen is uncertain: there has been a decline in investment in European plant construction, which is due to European hesitation.

Both September reports show that the energy transition remains politically desirable, but expectations are being formulated more pragmatically. In Germany, this means a correction in electricity consumption; globally, it means a slowdown in the ramp-up of hydrogen. In our view, this sobering up is necessary in order to prevent ambitious goals from coming to nothing – and to make more targeted use of existing resources.

We can deal with the market assessment already announced relatively quickly – almost everywhere, there has been a sideways movement in the stable corridor that has now lasted for three months. Only the CO2 market was very bullish. While geopolitical and infrastructural disruptions usually trigger reflexes in price patterns, the field remained strangely calm. Drones in Polish airspace, Chinese military deployment off Taiwan, Israeli attacks in Qatar, and a brief disruption at the US LNG hub in Freeport. In the past, at least one of these news items would have triggered a price reaction. Not so in recent weeks.

On the spot market, pricing was dominated by the seasonal interplay of weather and renewable energy production. Periods of significantly reduced wind and PV production led to marked peaks in the evening – in particular, the hour between 7 and 8 p.m. stood out several times with high spot prices of up to EUR 400/MWh. At this point, at the latest, it becomes clear that the days are getting shorter again. Overall, the spot market remained within expected seasonal ranges, although it is clear to see that the PV-driven cheap summer is over again.

The futures market revealed the central pattern of the reporting period: an upward trend in CO2 trading accompanied by comparatively calm behavior in other segments. This was driven by regulatory deadlines (compliance deadline on September 30) and the expectation of tighter availability (lower auction volumes for 2026). But it was also driven by increased long exposure by speculative market participants: In the meantime, net long positions speculating on rising CO2 prices reached a 5-year high. At the same time, however, the gas market saw LNG supplies and good storage levels, which reached the 80% target across the EU. All in all, the fundamental factors are balanced and are leading to sideways movement.

The outlook: The decisive factor is whether the current valuation of CO2 and gas accurately reflects fundamental supply and demand dynamics or anticipates expectations. A mild winter and comfortable storage levels could weaken momentum, while a cold winter could strengthen it. Weak signals dominate in the short term. At the same time, economic signs and production interruptions are dampening demand. The new Euro Manufacturing PMI for September also showed the first decline in 10 optimistic months. Will it be a harsh winter, both meteorologically and economically? The energy industry is divided on this question and is waiting for further indications.

Yours, Felix Diwok

For the Inercomp Team