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Spain: Electrcity Baseload weakens from July to Cal '13

09 May 2012 20:27:29 | edem

It was a bearish week across the curve for Spanish Baseload electricity contracts over the last week, with all contracts from July out to the Cal '13 contract shedding value over the course of the week.

July '12, for example, initially dealt on Thursday at €55.80/MWh, but thereafter embarked on a slide that took it down to €54.65/MWh at the time of its last deal in the morning on Wednesday.

It was a similar story with Q3 '12, which, having opened trading at €55.20/MWh on Thursday, last dealt at €54.35/MWh on Wednesday. Cal '13 also lost more than €1.00/MWh over the course of the same period, sinking from €50.90/MWh to €49.80/MWh on 9 May.

Traders pointed to bearish sentiment on oil and across Europe's electricity and gas markets to explain the weakening trend.

On the near term, the volatility that has been present in recent weeks continued, exemplified by the June contract, which on Wednesday rose following a bearish period.

The gain in June '12 echoed gains on the Week 20 contract, which had been lifted by the arrival of warmer temperatures and an expected lull in wind generation.

However, this confused one trader, who drew attention to the fact that temperatures were expected to ease again in the coming week, dulling demand for air conditioning once again.

The current premium between the price of Baseload power this week and next was unsustainably great, the trader said. Although volatile, Balance of the Week mainly dealt between €42.00-42.50/MWh. This was in contrast with the performance of June '12, which never sank below €53.30/MWh, ensuring that the premium between power for delivery next week and that for delivery next month was generally more than €10.00/MWh.

"It seems there is still a premium because of fears in the market that prices will turn around. People do not want to get trapped by rising prices," the trader said. In this sense, near-term trading activity over the last week was likened to "a photocopy" of the performance in other recent weeks, where an initial prompt premium was eroded as the contract neared maturity.

The premium was justified because gas would probably return to being the marginal generation fuel in the summer as coal-power covered for the lack of nuclear generation because of the nuclear maintenance period, a second trader said. Three of Spain's eight nuclear power plants will be off line by the end of May.

High Spanish summertime gas prices of almost €30/MWh (according to ICIS figures) would appear to underpin these high prices.

Uncertainty has also no doubt been fed by the volatility of the Spanish Pool price, which between last Thursday and Tuesday moved from €32.07/MWh to €47.49/MWh, settling on 9 May at €44.34/MWh for Thursday delivery. RS

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