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Italy: Electricity front month at all-time low on low spot levels

08 May 2012 19:47:11 | edem

The Italian wholesale electricity near and far curves on Tuesday continued the free fall that began the previous week, as declining Brent crude combined with low spot levels to push contracts across the board to year-to-date lows.

Division was evident between nearer- and longer-dated products, with losses among the former far more pronounced. June '12 closed at its lowest level since ICIS began assessing the product on both Baseload and Peaks.

Market participants have in recent weeks considered spot levels generally very low, but high renewable production and low demand pushed them increasingly lower, with the bearish influence feeding to the prompt and near curve. This state of affairs was said to be frustrating power producers. One source said on Tuesday that gas-fired generators are "at the limit of profitability".

"Considering the current price of the natural gas spot [the PSV Day-Ahead closed at €28.40/MWh on Tuesday, according to ICIS assessment], if you are a producer you have around €56/MWh of costs to generate electricity.

"If you add up costs for CO2 and green certificates, you arrive at €63-64/MWh, thus we are close to the break-even of profitability," he said.

The PUN Day-Ahead for Wednesday delivery out-turned at €63.30/MWh.

Further out, as Brent front-month crude traded in the $110/bbl region in the late afternoon, Italian Calendar Year 2013 Baseload closed at its lowest level since 7 October 2011, according to ICIS data.

The euro being at its lowest level against the dollar since January, a state of affairs leading to costlier oil, failed to provide support. The front year has shed €2.65/MWh since Tuesday 1 May.

Quarterly contracts extended the previous week's losses. Q4 '12 and Q3 '12 Baseload closed at fresh year-to-date lows, with Q1 '13 and Q2 '13 at record lows. SM

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