An illiquid Czech electricity market may be driving traders to export power to Germany at a loss in order to sell it, market participants said.
Czech day-ahead baseload products on the over-the-counter market averaged a €3.225/MWh premium to Germany since the beginning of the month to 16 February.
In spite of this, crossborder capacity of between 500MW to around 1.2GW was allocated from Czech grid CEPS to German 50Hertz every hour this month so far, data from the Joint Allocation Office (JAO) showed.
Even more capacity from CEPS to German TenneT was allocated, with between 1GW-1.4GW crossborder capacity purchased every hour.
Daily export capacity from the Czech Republic to Germany is usually relatively cheap and is often free.
This could explain why some traders allocated capacity as a kind of insurance policy, in case Czech power prices turn out below the German equivalents at some point during the day, said one market participant.
“You have to look on it [JAO] as just the auction. When people pay [for capacity] it doesn’t mean they will use it,” he said.
Crossborder physical flows data from the ENTSO-E transparency platform showed that daily capacity purchased from CEPS to 50Hertz had not been used during February.
By contrast, capacity from CEPS to TenneT was used frequently, but physical flows seldom matched the full capacity allocated.
Low Czech liquidity
Despite Czech-German cross border capacity being relatively inexpensive, it seems traders would still frequently be making a loss selling Czech power in Germany.
For instance, in hour 11 on 17 February, physical flows data shows that 969MW power was exported from CEPS to TenneT.
But Czech electricity on for that hourly product on the exchange was at a premium of €4.33/MWh to the German peer, which with a capacity cost of €0.02/MWh would mean traders lost €4.35/MWh on every MWh exported from CEPS to TenneT during that hour.
But some market participants thought traders would rather sell power on the German market at a loss to close a long position if unable to close the position in the less liquid Czech market.
“From the point of day-ahead prices it doesn’t make much sense, but there is still the issue of [long] open positions which some traders have from the past and then they’re trying to physically transport [the surplus electricity] to Germany,” said one trader.
Imbalance fees for 17 February were not available at the time of writing, but if unable to close a long position on the Czech market the previous day, traders had faced imbalance fees of up to €105.10/MWh.
In some cases, making a loss on some power sold in Germany could be the less painful option.
Opinion was divided on whether large exports of electricity to Germany from the Czech Republic would continue.
One trader said that a lack of surges in wind power and the return of units at Czech nuclear plant Dukovany had weighed on the spread between German and Czech day-ahead prices in recent days and that any widening of the spread would dissuade traders from buying export capacity.
The spread between the Czech and German day-ahead baseloads tightened on the weekdays from 11 February to 16 February, averaging €0.625/MWh with the premium on the Czech side.
Another source agreed, but added that it was still hard to fathom the motivation behind buying capacity from a more expensive country to a cheaper neighbour.
“It’s always hard to say what someone else is trying to achieve, but from my perspective the only reason why I buy capacity to Germany is that there is a higher price there than here.” email@example.com