Nuclear woes lift May electricity indices, German renewables influence underlined

Nuclear reliability issues in Western Europe were brought to the fore as the continent entered the summer, with outages in Belgium and France raising ICIS monthly index values for May ‘15 in most interlinked markets, latest figures show.

Meanwhile the strength of the German market’s influence was also underlined, as the renewables-heavy country recorded a new ten-year low index outturn which fed through to cheaper front month products in Hungary, Czech Republic and Poland.

The Germany effect

The German May ’14 index was the lowest for any month in Europe’s largest power market since 2004 as a growing share of renewable energy continued to depress the market while bearish pressure came from cheap coal.

The index was down more than 7% month on month caused by expectations of warmer weather and higher solar generation. Traded volume inched lower year on year.

The Hungary, Czech, and Poland indices also dropped both on a yearly and monthly basis.

Hungary reached the lowest for any month since June 2013, with liquidity up 70% compared with April, while the Czech figure was the lowest monthly index for any month since ICIS began calculating tit back in 2007.

In Hungary, lower than expected spot delivery and a healthy hydro outlook were the main bearish drivers. Previously, the April index was elevated by concerns over a tighter system because of cross-border capacity cuts and plant maintenance. However, hydropower oversupply in the Balkans filled the supply gap in Hungary.

The soft Czech outturn came despite supply uncertainty, with Czech nuclear power plant Temelin expected to be undergoing maintenance throughout May. Liquidity was poor, with traded volumes at a low since September last year.

The Polish May’15 index dropped 6% year on year. Fears over the potential price impact that power plant outages in Poland during April and May could have on wholesale electricity prices did not materialise as was the case the previous year, pushing delivery prices down in April which fed into sentiment on the front month. But supply uncertainty boosted trading interest, with volumes for May’15 more than doubling month on month.

Stuttering nuclear

To the south and west of Germany however, the picture was different in April. The French index was pushed up by sub-average temperatures and low nuclear and hydro availability, jumping 10% year on year, with the brunt of the bullishness confined to the forst half of the month

The contract then lost over €5.00/MWh from mid-April and expired €2.05/MWh lower than the 2014 counterpart. This was due to expectations of warm weather, stabilisation of hydro reserves and strong renewables forecast. Total volume was almost double the previous year.

Belgium’s continued need for imports due to nuclear outages also supported the rench market.

And in interconnected Italy, relatively strong natural gas prices affecting gas-fired generation combined with the bullish trading on the front month in neighbouring France in the first half of April to boost Italy’s May index by 5.5% year on year.

This interrupted a streak of 31 consecutive months of year-on-year depreciations. The last front month index calculated higher year on year had been September ’12.

The UK May ’15 index was up over 2% year-on-year, mainly due to the upward revision of the carbon price support from the start of April. This near doubling increased the cost of generating power from fossil fuels.

The month-on-month showed a 1% decline on the back of warmer weather, strong expected gas supply in summer, and sharply higher solar generation potential due to a recent ramp up in capacity prior to a cut in government subsidies from 1 April. ICIS staff