Sardinian spot prices drop with new interconnector
Day-ahead Baseload prices on the Italian island of Sardinia have hovered at parity, or slightly below, the country's average national price in recent months - a sign that the new 1GW interconnector between the island and mainland and stronger local capacity are taking effect.
The average weekly Sardinian Day-ahead Baseload price has stood at an average of €0.26/MWh above the average weekly price for Italy's six price zones, known as the PUN, since 20 December 2010, according to energy markets operator GME.
While Sardinia's premium to Italy's average often flattened in the weeks prior to 20 December, there were also strong spikes, such as a €49.56/MWh premium in the week of 6 December, and €12.18/MWh the week of 20 September (see graph).
Similarly, the average monthly Sardinian Day-ahead price in January 2011 was €1.25/MWh higher than the PUN price, while the difference in January 2010 was €4.59/MWh. The average monthly PUN price in January 2011 rose by 2.4% compared with the same month last year, whereas the average monthly Sardinian price declined by 2.6%, according to GME data.
Sardinia, along with the island of Sicily, historically posted the highest spot prices in Italy, with strong demand due to warm weather, heavy bottlenecking and insufficient local generation capacity. Total installed capacity in Sardinia stood at 3.5GW in 2010.
"Without a doubt, the price has dropped," one Italian power trader said. "You can tell that the interconnector has really had an effect already."
The Sardinia-Peninsula-Italiana (SA.PE.I.) interconnector was completed and inaugurated in mid-March, introducing the first direct link between the island and the mainland (see EDEM 18 March 2011).
But the project's first transmission line began operating in November 2009, providing some relief to the poorly-connected island.
In fact, the difference between the Sardinian and PUN average monthly Day-ahead Baseload prices fell from €42.99/MWh in September 2009 to €1.62/MWh in December 2009, according to GME data.
Now that SA.PE.I. has started operating at full capacity, the interconnector is expected to supply about 50% of Sardinia's demand, and even allow for the island's thermoelectric and renewable energy to be exported, according to grid operator Terna.
Traders therefore expect to see Sardinian spot prices to become increasingly aligned with the PUN.
Along with the arrival of the long-awaited interconnector, Terna's largest infrastructure investment to date, Sardinian prices have been kept in check with new thermoelectric and renewable generation.
German utility E.ON recently added two gas turbines with a combined capacity of 80MW to its Fiume Santo thermoelectric plant, bringing its total capacity to 1.04GW. The company also is working to replace the existing 320MW fuel-oil unit with a 410MW coal-fired unit, which it expects to complete in 2014.
The island's abundant sunshine and wind have drawn a great deal of renewable energy development in recent years.
Solar energy capacity rose by 165% between 2008 and 2009, from 431.6MW to 1.14GW, according to energy services manager GSE. Wind capacity grew by 33.7% in those years, from 453MW to 606MW, and is expected to reach 1.27GW in 2016.
"Sardinia's generation is really getting stronger," one trader said.
The Sardinian price's decline is likely to already be pulling the national PUN price down, as a weighted average of bids and offers across Italy's six zones, although a trader said the effect may be masked by the current lag in demand and bearish spot market. Still, if the island's Day-ahead price remains consistently in line with the mainland zones, its influence is expected to become increasingly noticeable.
Other island prices still high
While the new interconnector has eased the pressure on Sardinia, spot prices on the island of Sicily remain significantly higher than those in the rest of Europe.
In January 2011, the monthly average Day-ahead Baseload price for Sicily was €97.73/MWh, compared with €68.04/MWh for Sardinia and €63.45/MWh for the national PUN. Similarly, in February, Sicily's average Day-ahead price was €19.48/MWh higher than the Sardinian price and €18.06/MWh above the PUN price.
"Sicily has, effectively, less than 100MW of import capacity with the rest of Italy," a trader said. "The price has to be higher." SS
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