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UK: Prompt crashes as electricity auction pulls down OTC

05 Apr 2012 20:57:41 | edem

Prompt contracts on the UK wholesale electricity market nose-dived on Thursday as a "crazy low" Day-ahead auction outturn weighed on the equivalent over-the-counter (OTC) contract, traders said.

The front month sidestepped the bearish drag of the prompt, instead finding an element of support from a strong spot carbon contract, while shrugging off declines on the equivalent NBP product.

The bullish lift on the front-month clean spark was limited to just £0.13/MWh because of carbon's gains. It was calculated at £2.43/MWh at the close. The unadjusted product however, free from carbon's influence, rose by £0.33/MWh to settle at £4.72/MWh.

Seasonal contracts opened comfortably above Thursday's closing levels, buoyed by overnight gains on Brent front-month crude which was driven higher by concern over disruption to Iranian oil exports and supply in Iraq.

Winter '12 Baseload first changed hands at £53.60/MWh, a £0.35/MWh premium to the previous session's close.

But curve strength soon began to ebb away, with macroeconomic gloom spreading from its current source in Spain to the rest of Europe, with investors seeing the cushioning impact of the European Central Bank's huge liquidity injections beginning to ease off.

The front winter was sold down, scraping £53.00/MWh by mid-afternoon.

Trade on Day-ahead Baseload for Tuesday delivery did not fall below £45.95/MWh until the penultimate clip, when the product gapped down to £43.00/MWh.

A substantially lower auction outturn - one trader termed the £39.00/MWh result "crazy low" - saw the OTC equivalent contract rapidly sold down. It was last assessed at £43.25/MWh, a £3.55/MWh discount to the previous session's corresponding contract.

"Where the Day-ahead auction outturns is all about who is active on the auction and who is not," one trader commented. He said that some of the more active auction participants have a substantial amount of coal-fired generation in their portfolio.

When high dark spreads were added to the equation, a chunk of supply was being offered via the exchange auction which was forcing the average price down, and in turn weighed down the equivalent OTC product.

The comments backed those made by a spokeswoman for utility SSE, who told ICIS, on Thursday, that the company had honoured its pledge of placing 100% of its Day-ahead generation on the auction platform, despite not being able to secure all of its demand (see separate story). The utility does not buy back its own production. JS

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