Contest for French cable flows threatens unlimited upside for UK winter
Henry Evans
28-Oct-2016
The 2GW IFA interconnector will remain the marginal supply driving the UK electricity market for as long as concerns over French nuclear supplies this winter continue to bolster the French power market sources have said.
And with France’s supply issues driving exports predominantly from the UK currently, continued constraints could see UK prices ‘go anywhere to the upside’ as both markets compete for flows through the cable this winter.
“There’s a reasonable chance France will need power from us – even over the WD5 [hours 15:00-19:00 London time] – and if that happens then we can go anywhere to the upside,” one trader at a hedge fund said. “We haven’t seen cold yet or plant trips.”
Flow patterns this week have shown the UK exporting to France at the cable’s maximum capacity for much of the baseload and peakload periods. However, the high-demand early evening peak in the UK has resulted in flows flipping to net UK imports for a couple of hours.
While the French market is beset by concerns over its nuclear supply this winter, the UK has entered the winter amid historically low supply margins following the closure of several thermal plants in the last two years.
“There is way too much focus on the IFA flow, which is keeping it [the UK] high,” another trader at commodities trading-house said.
“But again if block 5 in France [15:00-19:00 London time] is going to be high all days in November, the UK has to follow. The sensitivity in blocks 3+4 [07:00-15:00] is stable but block 5 is very volatile upwards and I don’t think we can see flows on the IFA going out of UK in the tightest hours, hence the high curve.”
Another trader at a utility agreed. “The UK remains an island dependent on the continent for at least one hour,” he said.
However, he added that some reduction in demand through demand-side response or Triad management – where industrial and business consumers reduce demand to try and avoid expensive payments called Triad charges – could help limit the UK’s exposure to France. “On the tight hours, that is the only thing you need,” he said.
Gas-fired generation has typically provided the UK market with its marginal supply since the turn of the decade and as a result the curve has been most reactive to movements in the value of gas traded on the country’s NBP market.
Recently, coal prices have also had an impact as falling profitability for coal-fired plants have pushed the oldest and least-efficient units to the margins of the market.
But it is the French market, and its influence through the IFA, that could remain in prime control of the UK prompt and near curve this winter. henry.evans@icis.com
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