Diverging fuels complex may stabilise French power in Q4

Joachim Moxon


The fossil fuels complex could pull near-curve prices at the French electricity market in opposing directions over coming weeks, as the outlook for coal remains bearish while there is potential for upside on gas according to one analyst.

Meanwhile, risk arising from nuclear availability uncertainty is largely priced in and is unlikely to push short-term prices much higher, according to traders.

While coal and nuclear availability have been key drivers of French power during the summer months, French gas-fired plants are expected to play a bigger role in price setting in the fourth quarter.

This is because the weaker demand of the summer months limits the share of gas-fired generation in the power mix and enhances the role of interconnector flows in marginal price setting, particularly imports of coal-fired power from Germany. Imports are insufficient to cover peak generation during the winter, however, which means French gas-fired plants become more prominent in setting marginal power prices.

The thermal factor

“Coal prices have been high for a while now, particularly in the Asia-Pacific, due to high demand, production cuts in China and reduced supplies from Indonesia,” according to senior analyst Hans Gunnar Navik at consultancy Nena.

“It seems the Chinese production cuts will be sustained, but we should see increased supply from Indonesia and Australia. The cooling demand [for air conditioning], which has boosted coal-fired generation in the region, will also decline as the season changes,” he said.

Asian coal prices have affected European markets, as supplies from Colombia and Russia have been diverted. The ICE Rotterdam Coal Futures product for 2017 delivery has averaged $58.80/tonne so far in the third quarter, compared to $48.32/tonne during the previous quarter.

“I don’t see much downside on gas, however,” Navik said. “European hub prices may have bottomed out this year and have so far been insufficient to attract the increasing volume of American LNG exports.

“Maintenance at the UK storage facility Rough could also have an impact this winter, though some of this risk is already priced in,” he said.

Uncertainties regarding nuclear availability have also contributed to higher prices this summer. Compared to last year, availability has been down by over 9GW or 8% on average so far in August and is scheduled to be down by 3.5GW in September (see graph).

Frequent changes to the maintenance schedule also mean that traders expect availability to be lower at delivery than forecast only days before.

The ongoing uncertainty has resulted in a risk premium on the front month, which may have been overdone making it likely that prices will actually be lower at delivery, according to traders.


The rate of run-of-river hydropower generation in France has dropped sharply over the last two months, and had a lower weekly average in week 33 compared to the previous year for the first time since mid-May (see graph).

Precipitation in the Alpine regions was still above the norm in July but rainfall has been rare so far in August and is forecast as low in the Alps and the Pyrenees for the next 10 days, according to meteorologist Weather Services International.

Infill into reservoirs has stagnated and stocks fell week on week in week 33 for the first time since late April (see graph).

The combined share of hydro in the French power mix dropped to 9% during the week, compared to 13% in July. This has pushed nuclear close to 80% over the last two weeks despite weak availability, tightening supply margins and making France dependent on imports.

There is currently a large price spread between the two French gas hubs, and profit margins have so far been insufficient to encourage increased gas-fired generation in the southern zone despite the supply squeeze on electricity. joachim.moxon@icis.com


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