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UK: Late electricity curve strength lifts longer-dated spark spreads

03 May 2012 21:08:53 | edem

A burst of late bidding on the UK wholesale electricity market on Thursday resulted in gains on clean spark spreads from Summer '13 out.

But the push was not enough to prevent day-on-day losses on outright power products along the length of the curve.

Prompt contracts recorded mixed results, with system tightness and higher-than-expected consumption offset by weak underlying fundamentals. As a result of the competing short-term drivers, Day-ahead was assessed marginally lower than the previous day's corresponding contract, while the front-week increased in value with comparatively tight surplus margins predicted in week 19.

The near and far curves opened broadly flat to Wednesday's closing levels, but the bears soon gained traction as negative macroeconomic indicators dragged down both gas and power markets.

"Utilities were out, selling sparks across the board, which was weighing on the seasons," one trader commented.

Three clips totalling 75MW in volume were recorded changing hands on the front winter unadjusted spark spread at £3.40/MWh, a £0.08/MWh discount compared with ICIS's closing calculation on Wednesday.

The product was last calculated at a £0.19/MWh day-on-day discount after Thursday's close, reflecting the weakness of the derivative products and a feeling among participants that any sustained spark-spread recovery will be some time in coming (see separate story).

The late rise on power contracts was triggered by some sharp bidding on the gas side. The NBP front winter contract gapped up by 0.50p/th prior to the close, while an offer was lifted on the equivalent power product, pushing it £0.35/MWh higher in a single deal.

Substantial gains along the CIF ARA coal curve also offered support to power, traders said, although the dominant bearishness on the electricity market resulted in broad losses on seasonal dark spreads.

Closer in, contracts were buffered in either direction by underlying bearish drivers and intraday bullish influences.

Power consumption outturned up to 1GW above National Grid expectations, resulting in an unusually tight system, which, combined with expectations of a relatively low peak surplus margin - short of 10GW - during the week ahead offered some prompt support.

But the return to production of some major generation capacity on Thursday, including Intergen's 732MW Coryton gas-fired plant, Centrica's 509MW South Humber unit 2,and DONG Energy's 412MW Severn unit 1, limited any gains. JS

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