Fundamentals: Spain to see in 2018 with very low spot power prices

Strong wind supply and low demand will weigh on short-term electricity prices into the start of 2018 in Spain. Other bearish drivers in the near-term include above average temperatures and improved nuclear supply.

Particularly low prices can be expected for 1 January 2018 when wind output will reach 12GW, according to ICIS forecasts on 29 December. A combination of the long weekend for the New Year and unusually warm weather will weigh heavily on demand.

Temperatures will be as much as 4°C above average for the time of year out to 2 January 2018, according to European meteorologist WSI.

The combination of strong renewable production and low demand has seen average Day-ahead prices slide to an average of €47.75/MWh for delivery from 23-29 December on the OMIE exchange, including €40.69/MWh on 27 December. By comparison, the average spot price had been €61.92/MWh over the previous seven days.

Wind supply is expected to remain strong – around 8.5GW – out to 4 January 2018, according to ICIS forecasts.

Hydro stocks

High wind supply has partially filled a gap left by low hydropower supply over December. Since the summer, coal- and gas-fired generation had ramped up to make up for a shortfall in hydro production.

Available hydro stocks rose for the second consecutive week over the seven days to 26 December, according to the environment ministry. Increased stocks were recorded over the period in a delayed response to rain over the previous week.

Limited rain has been forecast to fall over the north of the country, where much of Spain’s reservoirs are located, out until 3 January, according to European meteorologist Meteoradar.

This may be sufficient to halt falls in hydro stocks and weigh on front month and quarter products.

However hydro stocks do remain almost 20 percentage points lower than the long-term average for the time of year.

French flows

Improved available nuclear capacity in France and warmer weather have reversed export flows between France and Spain, with Spain now importing. Spain has been a net importer every day since 21 December.

In addition, Spain’s available nuclear capacity ramped up on 22 December with the return of the 1.1GW Cofrentes facility.

Spain had been a net exporter every day since 27 November. Spain has interconnector links with Portugal, Andorra and Morocco, but its largest flows are with France.

Taking January and Q1 ’18 contracts when they were assessed on 27 December, Spain had a narrow premium to France. This means Spain should remain a marginal net importer over these periods.

Wide Spanish premiums to France are expected over the rest of the year. jon.stibbs@icis.com