Rising carbon prices benefit Centrica and SSE, Berenberg says

Centrica and SSE are likely to benefit from potential increases in EU carbon prices, Berenberg analysts said as they reiterated 'buy' ratings on both shares.

European carbon prices have further to rise after the EUY Market Stability Reserve creates a squeeze on the liquidity of EU ETS carbon permits, Berenberg said.

The analysts increased their price target for SSE shares to £15 from £14.70 and left their Centrica price target at 170p.

Higher carbon prices will lead to higher electricity prices and higher bills, benefiting the energy companies.

The analysts said the average UK electricity bill would rise by 6-22% and the average dual fuel bill will increase by 3-13%.

Rising power prices will benefit SSE's hydro generation and wind assets and increase the asking price for Centrica's nuclear stake, which it is considering selling, the analysts said.

Under the government's price cap the government is likely to exempt the companies for non-controllable costs, putting the government and the regulator on the hook.

"Both Centrica and SSE stand to benefit from our view of rising EU carbon prices, boosting wholesale power prices and buoying generation profits in nuclear (Centrica), hydro and wind (both SSE)," Berenberg said.