Extreme price spikes spread across European electricity markets
Prompt prices on electricity markets across Europe skyrocketed on Tuesday, with some gains extending further into Wednesday, as traders reacted to demand spikes driven by severe cold weather.
Fears on whether gas supply would cover current high demand have triggered a swathe of short covering on prompt gas contracts since the end of last week. This bullish sentiment spilled into the electricity market in a fast-moving trading environment and provided further uplift to short-term power products across Europe.
Utilities were forced to fire up oil-fuelled power plants in Italy, while in France, a drop in wind power production - rarely mentioned as a driver in a largely nuclear-reliant country - exposed upside on prices, reflecting the extreme tightness in the system.
The price rises were sharpest in the French power market on Wednesday. Prices soared to the highest level in a decade as wind power output dropped while cold weather fuelled demand.
In the over-the-counter market, the Baseload contract for Thursday delivery was reported trading shortly before 11:00 hours London time at €190.00/MWh - a level it has not closed above since 2001, according to ICIS Heren data. The contract was up by €54.00/MWh or 40% from Wednesday's close.
On the EPEX Spot exchange, prices were even higher, with Day-ahead Peakload for Thursday delivery trading above €600.00/MWh and Day-ahead Baseload above €300.00/MWh.
One trader said he thought "the worst is behind us", pointing to a slight upward revision in forecast temperatures in coming days.
The German Day-ahead Baseload price jumped to close at €86.00/MWh on Tuesday, with Peakload at €107.00/MWh, the highest levels since late 2008 according to ICIS Heren data.
Market participants said the German spikes were directly related to gains on European wholesale gas markets. At the German NCG gas hub, the Day-ahead has gained 46% in value since the start of the month and soared to a record close of €38.25/MWh on Tuesday.
In Italy ,Week 7 Baseload closed at €92.00/MWh on Tuesday, the highest since late 2008, while the Peakload equivalent rose to €124.00/MWh.
A swathe of bullish drivers cut through the Italian market, including record-high spot price levels, cold weather, and a rare change in the generation mix as expensive oil-fired power plants were ramped up to curb gas-to-power supply.
Central and eastern European power markets were also bullish. Spot prices in Serbia and Romania reached record levels on Tuesday following supply disruptions in the Balkans. Plants were off line, the grid was struggling to cope with the cold-weather related demand and the effect of earlier concerns over Russian gas supply to the region lingered.
The Serbian Day-ahead Baseload for Wednesday jumped to trade and close at €120.00/MWh, the highest ever assessed by ICIS Heren, while Baseload for Thursday delivery traded at €125.00/MWh. The country remains in an emergency state.
The Romanian equivalent traded and closed at New Lei 338.00/MWh, also a record-high price according to ICIS Heren data.
The Hungarian Day-ahead close of €85.20/MWh did not come as a surprise to traders as the product reached a similar level just over a fortnight ago.
Poland also registered a record high on Tuesday on the back of a sharp rise in demand. The Day-ahead Baseload closed at Zl315.00/MWh - the highest ever ICIS Heren assessment.
In the Czech Republic, Day-ahead dealt at €85.25/MWh - the highest level since November 2008. The extreme upside mirrored movements on the German and French markets as the cold snap persisted.
In the UK, gains were substantial, but less severe than across mainland Europe. Day-ahead closed at a 13-month high on Tuesday, driven by surging gas prices on the NBP, while the French power system tapped all available power through the 2GW UK-France interconnector.
Tuesday's Day-ahead Baseload outturned at £64.75. It was reported trading up at £66.00/MWh during Wednesday's session, as French demand continued to drain electricity supply from the UK system.
The Weekend Baseload contract's close on Tuesday of £58.00/MWh was the highest against equivalent contracts in over two years.
Turkish Baseload prices on the PMUM exchange rose to at least a three-year record of Turkish lira 260.45/MWh for Thursday delivery following severe disruptions in gas flows from Azerbaijan and unconfirmed reports of cuts from Iran.
However, traders said prices could fall towards the end of the week as Azeri flows were expected to be restored. BP, which operates the Shah Deniz gas field in Azerbaijan, said the flows stopped on Tuesday, but would be ramped up by Wednesday evening. ICIS Heren staff
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