Flow-based impact on winter power prices still uncertain

Market participants are still unsure how flow-based market coupling will effect winter power prices in the Central West Europe region with the expectation some system tightness might arise during the colder part of the year because of problems in Belgium.

Flow-based market coupling was introduced in the markets of Germany/Austria, France, Belgium, the Netherlands and Luxembourg on 20 May and is designed to optimise cross-border flows between the countries.

Prompt prices have started to converge and the expectation is this will limit the downside on both French and German power prices during the coming months. An increase in exports from Germany to the Netherlands and France to Belgium quickly resulted in lower prices in the Benelux countries.

The big question is how the winter will turn out, a trader said. In theory, French prices should come down due to increased imports from Germany, but France will also be more exposed to supply issues in Belgium this winter, he said. Prolonged outages at two key nuclear reactors in Belgium has resulted in growing fears that the Belgian market will be undersupplied next winter and may face outages during cold spells.

“We still need to do some more weeks of back-testing to determine how the flow-based system will really turn out, but the system could get pretty tight this winter and we could see French winter prices rocket to Italian and Belgian levels,” he said.

Netherlands

German exports to the Netherlands have increased as expected. On 26 May, 4.8GW of power flowed from Germany to the Netherlands, data from the European Network of Transmission System Operators for electricity showed, which is the highest figure in the last month at least.

In the Netherlands, the price impact of flow-based coupling could move from the peak contracts to offpeak, one trader on the Dutch market said. This is because the key price driver during summer is solar generation in Germany, while wind will be increasingly important during the colder months, he said.

The impact on Germany was initially less perceptible due to strong hydro availability in the Nordic region, which allowed the German market to balance its exports on one front with imports from another.

However, firmer prices in both Germany and France had been identified by traders by the second week since the flow-based method was launched. joachim.moxon@icis.com