Coal outages drive Dutch day-ahead power premium to Germany

Matthew Jones

15-Jul-2016

A Dutch premium to Germany on the day-ahead electricity market has increased since June, driven by coal plant outages in the Netherlands. But with coal plant availability set to improve, the spread should begin to narrow again, traders said.

The Netherlands normally holds a price premium to Germany on the over-the-counter (OTC) day-ahead market, owing to a high quantity of renewables in Germany. This discount had been relatively modest during the first five months of the year, with Dutch Day-ahead Baseload carrying an average premium of between €1.00/MWh and €3.50/MWh in each month.

However, the average premium increased to almost €5.00/MWh in June, and has continued to grow in July, averaging €8.00/MWh in the first half of the month.

The primary reason for the increasing premium has been strength in Dutch day-ahead prices since the start of June driven by poor coal plant availability.

“The Netherlands has a lot of outages. It’s missing a lot of coal,” one trader said.

The country’s largest coal plants, Maasvlakte, Eemshaven and Hemweg, have all experienced some scheduled or unscheduled maintenance over the past six weeks, which has cut supply.

In the first two weeks of July, the combined available capacity of the three plants ranged from 47% to 64% of the total.

Electricity production from coal has become increasingly important to the Dutch market in recent years, growing by 35% in 2015 to reach the highest level of production since 1990, according the national statistics office CBS.

With gas-fired production in decline, coal could even overtake natural gas as the dominant production fuel if the trend from 2015 is seen again this year (see EDEM 28 June 2016).

Given the importance of coal to the Dutch generation mix, the outages in June and July helped increase Dutch day-ahead prices, expanding the premium to the German market.

Other factors

Although coal unavailability has been the main price driver in recent weeks, relatively poor renewable generation in the Netherlands has also contributed to higher prices.

Dutch day-ahead values have also been influenced by a slight increase in prices at the TTF natural gas hub. The TTF has long been a price driver for the Dutch curve due to the fact that gas is the marginal fuel in the country (see EDEM 27 April 2016), but the TTF is not normally a significant driver of day-ahead prices. However, with coal outages necessitating an increase in gas-fired production to fill the shortfall, the TTF has had a small impact over the past month.

“You need to take TTF into account, especially when coal comes off,” one power trader said.

TTF prices were pushed up in June and July by planned and unplanned maintenance in Belgium, which has helped to increase Dutch day-ahead power prices.

Outlook

On Thursday, the Dutch power Week 29 contract climbed to the highest value for a front week contract so far this year, suggesting that prices are unlikely to drop in the short term. This was driven primarily by forecasts for hotter weather in France, combined with relatively poor nuclear availability, traders said.

However, with coal plant availability in the Netherlands set to improve by the end of Week 29 according to ENTSO-E data, Dutch prompt prices could begin to fall.

“When the coal comes back online, Dutch prices will come back down and the spread to Germany will narrow,” a trader said. matthew.jones@icis.com

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