Polish power Cal ’17 in free-fall, uncertainty squeezes liquidity

Author: Karolina Zagrodna


The Polish power contract for delivery in 2017 has lost nearly 4% of its value at the over-the-counter (OTC) market since the start of the year.

The product’s weakness has been considerable. At this time last year, the average of the two summer quarters for 2015 delivery was almost flat to the then-front-year of 2016.

But at Thursday’s close, 2017 was more than Zl 10.00/MWh below the average of the summer quarters for this year (see graph)

Despite the decisive drop, liquidity on yearly products has already fallen sharply year on year, by 87%, as market participants remain at odds over what fundamental drivers will prove dominant for the product in coming months.

Improvements in renewable power generation, and in particular wind power, has sent bearish signals along the whole electricity forward curve in recent months.

But the availability of cross-border capacity and increases in supply flexibility set to come in the shape of new electricity interconnectors remains uncertain.

Supply and demand

Strong wind power has kept a lid on prompt prices so far this year. According to data from power grid operator PSE, wind power reached nearly 4TWh in most hours in recent days, double the wind generation in peaks hours during the same period last year.

This has pressured short-term power prices. The average day-ahead price at the OTC market has so far this year been around Zl 177.00/MWh, 2.3% down year-on-year.

Yet this is nearly Zl 20.00/MWh higher than the price of Cal ’17 at Wednesday’s close, which was around Zl 157.00/MWh, further underscoring the weakness of the front year in particular.


Extrapolating the 2.3% drop in the day-ahead average across the year would give a 2016 average of Zl 179.00/MWh.

This is in line with the opinions of several Polish power traders who said the Cal ’17 expiry price is indeed expected to be below the average day-ahead value in 2016 because of supply increasing over time. And it is certainly on course for that.

A new 1GW unit at coal-fired power plant Kozienice will come online in 2017. Moreover, by the end of next year, the total amount of installed wind capacity is set to increase by 28% compared to today’s level, reaching nearly 7GW.

Poland recently opened a 500MW electricity cable LitPol, connecting the country with Lithuania, and is also set to operate phase-shifting transformers, designed to control unpredictable wind generation in Germany, by the second quarter of this year, increasing its supply options.


However, according to one Polish trader, it is too early to forecast prices for such a far-dated contract. It is better to wait for “more neutral conditions” when wind power calms to see a more clear picture, he said.

LitPol capacity has been reduced since its launch in December and the previously promised additional 500MW import capacity into Poland due to phase-shifters is now unlikely to be offered until next year when one the Germany’s grid operators 50Hertz finishes technical work on its side of the border.

“We don’t have 100% certainty what will happen [with the operation of new cables] so it’s best to wait and see before we chose the crucial drivers for Cal ‘17,” one trader said. This would go some way to explaining the drop on volume on far-dated products.

Such a mixed outlook among Polish traders has already contributed to a sharp drop in liquidity on the front-year product. Only 50MW changed hands at the OTC market since the start of the year.

This is 87% less than what transacted for the Cal ’16 as front year during the same period last year. karolina.zagrodna@icis.com