Retroactive natural gas discount feeds into weak Greek electricity pool price

14 March 2014 06:00 Source:ICIS
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Greek wholesale electricity prices have fallen by an average of 13.5% since state-owned gas supplier DEPA and Russia’s Gazprom inked a deal in February allowing a discount on the price of imported gas.

Participants polled by ICIS said the decrease was in line with the 15% markdown, but added that other fundamental factors such as higher wind generation and mild weather may have contributed to the bearish move. “[The] gas discount is a structural issue and quite bearish,” one noted.

The waiting game for Greek participants came to an end when the deal was struck last month ( see EDEM 26 February 2014 ). It included a 15% discount in gas prices to be implemented retroactively from June 2013.

Data from market operator LAGIE showed that, while at the beginning of the year day-ahead prices were above the €60.00/MWh level and often peaked above €70.00/MWh.

But since the announcement, prices fell to hover around the €55.00/MWh level and in some days dropped below €45.00/MWh.

Two weeks after the discount was announced, the Greek pool price, known as the system marginal price (SMP), averaged €56.62/MWh, down 13.5% compared with the average from the beginning of the year until the announcement.

Traders were initially torn over whether the impact on the SMP would be noticeable immediately.

Some said gas-fired producers had already changed their behaviour, posting lower offers into the SMP.

However others dismissed any bearishness until the paperwork is signed.

A third suggested the discounted gas price would add pressure immediately following the announcement.

Fundamentals

Participants said the drop in prices had been higher than anticipated but this could also be attributed to bearish supply and demand fundamentals.

Traders pointed to higher wind generation hitting the country’s grid in the last week. One source also pointed to mild weather which had kept demand low.

Sources added the bearish outlook would carry over into coming months. “I am expecting to see very low prices in April, but it also depends on production from photovoltaic installations,” one said.

Another pointed out that temperatures will only get warmer. “Low consumption will only add to the bearish picture,” he noted.

Some said the bearishness may be offset by the return of the interconnector to Italy, possibly in July, which has been dogged by problems limiting capacity since July last year. Greece exports up to 500MW to neighbouring Italy. Sophie Udubasceanu

By Sophie Udubasceanu