Dutch power gains boost gas-fired stations’ summer profit margins

Gas-fired power generators in the Netherlands once again look set to make money for producing power at peak times during the second half of summer, according to ICIS calculations.

The clean peak spark spreads, a measure of the profit margins for gas-fired power generators including the price of emissions, have moved back into positive territory over recent sessions. This means that generating power for delivery during peak times, between the hours of 08:00 and 20:00, looks set to make money for combined cycle gas turbines (CCGTs) in July and Q3 this year.

The spreads had been driven negative last month following the introduction of a new methodology for determining cross-border power capacity, flow-based market coupling, on 21 May (see EDEM 28 May 2015). This led some market participants to speculate that some CCGTs in the country could be mothballed earlier than expected.

Flow-based market coupling

The new methodology was introduced to maximise the efficiency of cross-border capacity between the German, French, Belgian and Dutch markets, causing greater price convergence. The initial effect of this was to cause increased power flows from cheaper Germany into the Netherlands, causing Dutch power prices to tumble.

But in the last two weeks Dutch prices have picked up again. Market participants have said this is party because flow-based coupling has made it difficult to predict the amount of power capacity that will be available on the borders.

“Settlements [on the APX exchange day-ahead] have been very erratic,” said one trader on the Dutch power market, “and recently very high at times.”

The high day-ahead prices have fed through to support the power near curve, which has in turn widened the spark spreads for the second half of this summer.

Unplanned outages

Another bullish driver for the Dutch power prompt has been unplanned outages in coal-fired power plants over recent sessions. “The availability situation has been pretty bad recently,” the trader said.

The 1GW Maasvlakte 3, 500MW Maasvlakte 2, 600MW Amer 8 and both 800MW Eemshaven units A and B have been affected by unexpected outages since 15 June, according to ENTSO-e transparency data.

Looking ahead

Traders are uncertain how much the return of this coal capacity will weigh on day-ahead power prices, since the price seems difficult to predict with flow-based market coupling.

As long as the amount of cross-border capacity remains difficult to estimate ahead of schedule, this will continue to feed risk into the near curve, traders have said.

“It remains very difficult to predict flows in advance,” said the first trader.

“I would agree,” said a second Dutch power trader, adding that it was not something traders were getting used to. “That situation has not changed in recent sessions.”

A third participant said this would continue to support the spark spreads as long as it fed risk into the Dutch power prompt. abigail.beall@icis.com