FBMC comment: High CWE power prices should couple going into weekend

The likelihood of price coupling across centralwest Europe’s day-ahead electricity markets will be high for the time of year on Friday, with very low renewable power in Germany expected to pull power prices up towards those in France, the Netherlands and Belgium.

A fall in demand into the weekend will also allow for increased flexibility in the regional system, making price coupling more likely.

On a day-ahead basis, power prices will be closer across markets than they have been in recent sessions on Wednesday, until late in the evening when cross-border capacity limits between Germany and France will be hit. This will cause French and, in particular, Belgian prices to spike relative to Germany, due to the restrictions on cheap German power.

Beyond the day-ahead

Electricity prices will remain inflated across the CWE region in general for the remainder of this week with demand supported by the continuation of sub-average temperatures. The harshest of the cold will affect centralsouth parts of Europe, therefore supporting prices in France and the south of Germany, where the country’s demand centres are located, in particular.

For Thursday delivery, over-the-counter trades indicated Germany would still hold a discount to the rest of the region however, with strong wind output in the north offsetting the increased demand in the south. Bids on the French power market suggested a potential €10.00/MWh premium over Germany.

Price coupling then becomes far more likely on Friday and over the weekend as demand drops off and German wind output falls to very low levels. A recovery in solar generation for the weekend is likely to drive a German discount for a few hours around midday on Saturday and Sunday, but outside of this, price coupling should still happen sporadically.

OTC trades on Tuesday confirmed this, pricing the German weekend around €35.00/MWh, just €4.00/MWh below France – a relatively tight spread. There was no price visibility in the Dutch or Belgian markets but recent trends would suggest both will be priced closer to France than Germany.

A 1.5GW downward revision on Tuesday for French nuclear over the weekend will mean more reliance on German imports however.

Further ahead the weekend of the Easter public holiday will be very soft, with German baseload trading just below €15.00/MWh on Tuesday. Sunday 1 April in particular will see very cheap prices with ICIS analysts forecasting residual demand – power demand minus wind- and solar-power production – to be lower than nuclear and lignite output combined for a brief period mid-afternoon. No negative pricing is yet foreacst, however.

In Belgium, the 1GW Tihange 3 nuclear unit goes offline from 1 April until mid-May. This will support a Belgian premium relative to the region. jamie.stewart@icis.com