Energy industry expects long-term German power price rise

Source: Heren

2018/08/10

Energy industry expects long-term German power price rise

LONDON (ICIS)--Energy industry experts anticipate that German wholesale electricity prices will rise over the next five years, despite uncertainty about the price development of German power on the near curve.

Approximately 80% of experts expect German electricity prices to rise on the far curve, according to the results of a survey released by the ZEW research institute on Thursday.

A reduction of conventional capacity, stable demand through ongoing electrification and rising fuel prices were the main reasons cited for the price rise, report author Dr Nikolas Wolfing told ICIS on Friday.

The German government plans to phase out nuclear generation by the year 2022, which is likely to drive German electricity prices higher.

Despite the report’s conclusions, ICIS data showed that the Year 2020, Year 2021 and Year 2022 contracts each traded more than €2/MWh below the front-year price of just under €45/MWh on Thursday. Year 2023 last traded on 18 July at €43.15/MWh.

This disparity suggests that either the majority of the experts surveyed are incorrect in their predictions, or that products on the far end of the German forward curve are undervalued.

Data from the survey did not specify any predictions for individual years.

The consensus that German electricity prices will rise was not reflected in near-curve price expectations, with 45% of survey participants anticipating a price rise while around half of experts predicted consistent prices.

“For me this reflects rather a continued moderate upwards trend of power prices in Germany,” Dr Wolfing said.

Fuel price forecasts

Coal amounts for around 15% of Germany’s electricity generation and the value of the commodity therefore has a significant impact on electricity prices.

Experts surveyed also disagreed on the price of coal over the next five years. While 44% did not expect a significant change in prices, 30% anticipated an increase and 26% forecast falling prices.

“Coal prices are, among all energy prices, those where participants expect the least variation,” Dr Wolfing told ICIS. “Looking at the forward curve, this is plausible.”

In last year’s ZEW survey, 43% said coal prices are likely to remain stable, 31% expected losses and 26% predicted gains over the next five years. This marks a slight swing towards higher expected coal prices in this year’s survey.

The ZEW Energy Market Barometer asks a panel of Germany-based experts in the energy industry for assessments of current topics in the energy sectors. The current survey is based on 180 responses.