German power underpriced as CWE market coupling nears - traders
German electricity traders are yet to pay adequate regard to the bullish impact on prices that Central West European (CWE) market coupling will have, a utility-based market participant said on Thursday.
The spread between the remaining baseload quarters of this year and the Cal '14 Baseload should be much higher as a result of the CWE market coupling scheme, he said.
Flow-based market coupling will increase flows to neighbouring markets, increasing German prices, explained the source. "The Cal '14 is way too low. The spread between the Cal '13 [components] and '14, which is now around €1.40/MWh, should be €1.50/MWh higher just because of flow-based market coupling," he said.
At Wednesday's close, the baseload average of Q2, Q3 and Q4 '13 stood at €40.16/MWh, with Calendar Year '14 at €41.80/MWh, a €1.64/MWh premium, according to ICIS assessments.
A second German power trader agreed with the fundamental impact based on the publication of flow-based "parallel run" testing results, which began last week, according to European auctions operator CASC.
Early signs are that the impact will be "larger than we expected", the source said.
He added that German offpeak hours had been the hardest hit with more power exported to the Netherlands and France where prices fall relatively heavily on the back of increased imports.
The trader added: "The results confirm our expectation that flow-based market coupling increases available cross capacity significantly in the CWE region."
During the CWE market coupling flow-based "parallel run" test period, the model incorporating all available capacity in a price-coupled region will run in parallel to the existing available transmission capacity (ATC) model, under which grid operators specify capacity available on each border.
The next stage of the CWE project - wider North West European (NWE) project testing - is expected to begin in April with launch to follow some time in the fourth quarter (see EDEM 18 February 2013).
As of 21 February, market results were being published weekly on Thursdays by CASC, with retroactive publication of parallel run data since 1 January.
The information published includes hourly prices, volumes and net positions for all CWE market areas and graphs on price convergence and divergence. Silvia Molteni, Beatrice Mavroleon and Martin Degen
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