Hungarian electricity traders split on risk premium if Ukraine goes short

Sophie Udubasceanu

02-Oct-2014

Traders on the Hungarian electricity market are divided over whether there is a risk premium on monthly contracts because of fears that imports of power from Ukraine may halt, or even reverse, if the country faces shortages over the winter.

The crisis in Ukraine has raised fears that the country may face shortages of Russian coal and gas it usually relies on to generate electricity through the winter months, causing it to seek to import electricity from Hungary, or at the very least cut exports.

A 650MW interconnector between the two countries has over the past weeks seen Ukrainian power in high demand in Hungary, with data from the daily auction for Friday delivery, published on Thursday, showing an average of 447MW being allocated to flow hourly from Ukraine to Hungary.

A reversal of these power flows would push up prices in Hungary and other regional markets, if the country was forced to seek alternative suppliers.

One trader said: “Maybe the electricity [flowing from Ukraine to Hungary] will change course. Maybe it will happen in the winter. All the coal mines are in Russia’s hands – there is no gas and so there will not be enough production [in Ukraine].”

But another trader was doubtful that such a reversal in flows was even possible on the interconnector. He said: “As far as I know, Ukraine is not connected to the European grid.

“That’s a technical question, but I don’t think that [flowing power from Hungary to Ukraine] would be possible. The systems are simply not synchronised.”

Hungarian grid operator MAVIR was not available on Thursday to comment on whether exporting power on the cable to Ukraine was technically possible.

Confusion

There was also confusion over whether Hungary would be able to export to the whole of Ukraine or just the same region from which it imports power.

“Hungary can only export into a small part of Ukraine and I am not sure if that small part of Ukraine would need electricity, because they have more than they need. Ukraine has a small island within itself which is connected to Romania, Hungary and Slovakia,” added the trader.

One source suggested Ukraine might turn to Romania or Slovakia before trying to export power from Hungry.

Another said a risk premium had been priced into monthly and quarterly contracts but that it was hard to see how much of the total was down to this.

“Of course that risk in priced now, but since this [flows going from Hungary to Ukraine] has never happened before, who can tell how much the risk premium accounts for?

“So its priced in on some level, but to see if it is enough, if it is priced fairly – we’ll need to wait for it to happen.”

The Hungarian market has tended towards shortness in recent months, caused in part by planned maintenance on Paks, a nuclear power plant that supplies around 40% of the country’s electricity. In September, this shortness caused the price of cross-border capacity from Austria to Hungary to jump by over 50% month on month to €12.20/MWh.

Another factor contributing towards tightness in the Hungarian system is increased demand for power in Serbia, where flooding in May put coal mines out of action. The country has enough supply to cover itself for the time being but is not in a position to sell electricity and is importing Hungarian power. Ellie Chambers and Sophie Udubasceanu

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