Traders: French nuclear risk overdone, front-month to ‘shed value’

Frequent changes to maintenance schedules during the summer months have made expectations of nuclear power plant availability in France increasingly uncertain.

But most traders agree that resulting risk premium on the front month for September delivery has been exaggerated and should come down ahead of expiry.

“This game has been going on for two or three months now and is making it very difficult to predict supply on a week- or month-ahead basis,” one trader said. “Sellers are very cautious and a risk premium has lifted prices on the near curve.”

Any drop in the contract would have a bearing on flows of power from Italy, where the front-month peakload product has recently been carrying an unusually narrow premium to its French equivalent meaning traders are expecting more export flows to France during peakload hours (see separate story). So being short in Italy and long in France has its risks as expiry of the front month nears.    

Nuclear availability has averaged under 40GW so far in August. This compared to forecasts at the end of the previous month which indicated close to 45GW.

“Everybody is expecting availability to be lower than indicated, which is why week-ahead contracts are expiring above actual delivery,” a second trader said.

The most extreme example of this pattern in August, according to ICIS assessments, was week 32. The prompt product delivered in mid-August and was last assessed with a premium of almost €2.00/MWh over its eventual delivery value using average day-ahead prices and the component weekend at expiry – a premium that accounted for a full 6% of outright expiry value.

The trader continued: “The risk premium on September ’16 is too big and [it] is likely to shed some value, but I’m not convinced that the issue of extended outages will be resolved before the colder months as this is a government issue and not entirely in the hands of EDF.”

Atomic woes

The power incumbent EDF, which operates all of France’s 58 nuclear reactors, warned on 9 July that outages were likely to be extended during the second half of 2016. This assessment was based on additional controls to be carried out by nuclear authority ASN to verify the robustness of steel-forged components, primarily steam reactors.

This was the result of an examination carried out at the behest of ASN since 2015, in which the steam generators of 18 reactors were identified as potentially suffering from the same defect in the steel composition as a nuclear vessel at a new reactor under construction in Flamanville.

As a result, EDF in July revised its annual nuclear production target from 408-412TWh to 395-400TWh. At 205.2TWh, volume was already down by 5.2TWh in the first half of 2016 compared to the previous year and the initial target was also lower compared to 2015 and 2014.

The upper end of the target range of 415TWh was exceeded during both these years, due to increased efficiency during maintenance, according to EDF

“The risk premium is a bit overdone, if you compare with Germany,” a third trader said. “The problem is likely to last until we see the first signs of cold kicking in. We cannot have the risk of outages to the same degree when that happens,” he said.

The 18 reactors identified by ASN as potentially affected are Blayais 1, Bugey 4, Chinon B1 and B2, Civaux 1 and 2, Dampierre 2, 3 and 4, Fessenheim 1, Gravelines 2 and 4, St Laurent B1 and B2 and Tricastin 1, 2, 3 and 4.

Five of these reactors are currently offline due to maintenance.

Also weighing on availability are extended outages at the 800MW Bugey 5 and 1,330MW Paluel 3. Both have been offline since 2015 and are not scheduled to return before 2017. The outage at Paluel is expected to last for 27 months after a steam generator was damaged on 31 March during the reactor’s third ten-year inspection. joachim.moxon@icis.com