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Higher volumes expected with NWE electricity market coupling, but project launch date could still change

01 Nov 2013 14:14:25 | edem

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Day-ahead traded volumes are expected to increase on both UK and French electricity markets as a result of northwestern European (NWE) market coupling, but if the GB virtual hub is delayed, the NWE launch planned for 26 November might also be pushed back, said a spokesman from APX power exchange.

“NWE market coupling will have a positive effect on the French market, it could trade more actively,” a French trader said. According to the APX spokesman, volumes in both UK and French markets will grow after the launch as participants’ confidence in the market increases.

Market coupling allows traders to buy Day-ahead power and the capacity to transmit it across borders at the same time, a model known as implicit auctions, which will replace the traditional explicit auction model.

This makes it possible for the most efficient plants across the coupled region to be used first, reducing overall generation costs.


Higher French prices

With NWE market coupling, convergence of Day-ahead power prices between France and the UK will lead to higher French prices, as they move closer to their UK equivalents with more efficient use of the France-UK 2GW IFA interconnector cable and growing French exports, said a spokeswoman from French energy regulator CRE on Wednesday. A trading source agreed, saying of all the markets included in the NWE coupling project, the UK will exert the most force on French prices, pulling them upwards.

ARENH and flow-based coupling

However, French suppliers will be shielded from higher wholesale market prices by the ARENH tariff. The tariff obliges incumbent generator EDF to sell one-quarter of its nuclear generation to competing suppliers at a fixed price that has been set at €42.00/MWh since early 2012, a spokesman from French alternative supplier Direct Energie said.

And French prices will eventually be pushed downwards when flow-based market coupling is introduced in the already-coupled central and western Europe (CWE) region that covers France, Germany, Belgium, the Netherlands and Luxembourg. The more efficient use of interconnector cables will then bring French prices closer to the generally lower German prices, said a French trader. Flow-based market coupling in the CWE region is expected to go live sometime after the NWE launch, but an exact date has not yet been provided ( see EDEM 30 April 2013 ).

The NWE price coupling project will bring together the CWE Day-ahead markets of France, Germany, Belgium, the Netherlands and Luxembourg, with Denmark, Estonia, Finland, Austria, the UK, Latvia, Lithuania, Sweden, Norway and Poland.

GB hub concerns

However, the project could be dependent on GB market readiness, said APX. Delays to completion of the GB virtual hub could lead to delaying the NWE launch. The GB hub price will be a uniform volume-weighted figure accounting for activity across both UK power exchanges APX and N2EX.

According to a previous statement from French energy regulator CRE, the coupling of French and UK Day-ahead markets will lead to a €50m electricity supply cost saving across both markets per year( see EDEM 30 October 2013 ).

An announcement regarding possible delays to the NWE launch is expected before the European Commission-organised Electricity Regulation Forum, also known as the Florence Forum, scheduled for 12 November, a spokeswoman from APX said on Thursday ( see EDEM 31 October 2013 ). Beatrice Mavroleon

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