EUA volatility boosts volumes on Italian power far curve

Source: Heren


LONDON (ICIS)--High price volatility on the Italian wholesale electricity curve boosted trading activity on longer-term contracts, with volumes on the Year +1 and Year +2 surging in the past few sessions.

The trend is likely to continue in the sessions ahead if volatility in the wider energy mix continues, as traders will keep looking to lock in profits as they take advantage of the swift price changes.


Trades data submitted to ICIS show that volumes dealt on the Italian power Year 2020 Baseload were 3.7TWh in the first 14 days of September. This is just 5% less compared with the whole of July when volumes dealt on the contract hit a record high and already 0.2TWh up year on year compared to volumes exchanged in the whole of last September.

Volumes on the less liquid Year 2021 Baseload grew at a higher rate, with 149MWh dealt in September so far. This compares to no volumes dealt in August, and is only short of 24MWh compared to volumes dealt in the whole of July when trading activity on the contract reached a record high.

Price volatility

Higher trading activity followed price volatility in the past few sessions. This was mostly due to volatile carbon contracts. The EUA benchmark ICE December ’18 rose to a 10-year high of €25.50/tCO2e on Monday but plunged 20% in value on Thursday.

Carbon prices caused gains and losses on French power and Italian gas markets, which in turn drove the Italian power market. French power prices drive the Italian equivalents because of the high transmission capacity between the two countries, while gas drives power because of the marginal nature of gas-fired power plants in the country’s generation mix.

For instance, the Year 2020 product was assessed at a record-high €65.10/MWh on Monday, and lost €4.40/MWh in the three following days.

According to market participants polled by ICIS, this caused traders to cover their positions when prices were higher and to sell off as prices plunged. “When prices go higher, especially if you had already bought EUAs, you definitely rush to cover your position,” one utility-based trader said on Thursday.

PSV volumes

Italian gas curve contracts failed to mirror the boost in liquidity on the power curve, despite prices displaying a similar volatility. This was mainly due to unchanged locational spreads between the PSV and the Dutch TTF gas market.

The TTF is a key reference point for PSV traders because of its higher liquidity and because gas from north Europe through Switzerland is Italy’s marginal source of supply. Therefore, PSV products traditionally trade at a premium to the TTF, which largely reflects transport costs.

As the PSV-TTF spreads on the curve remained largely unvaried despite volatile prices on both markets, traders lacked opportunities to profit from volatile contracts.

The Italian gas and power markets are closely connected because Italy highly relies on gas-fired plants, which account for around 45% of overall yearly power production. Gas demand from the power sector accounted for one third of overall gas consumption in 2018 so far, data published by gas grid operator Snam Rete Gas showed.