Belgian November power contract hits 8-year high but downside limited

Source: Heren


LONDON (ICIS)--The Belgian November ‘18 power contract is likely to hold on to risk premium related to tight supply margins as the country’s nuclear availability will fall to 1GW from Saturday 13 October.

In addition, forecast colder weather in week 42 is expected to put bullish pressure on prices in neighbouring France - a key import source for Belgium.

The Belgian November ’18 Baseload traded at €205/MWh on 4 October, the highest trade recorded for a November contract in the past 8 years.

The price was also €128.7/MWh higher than the French equivalent on the day, according to ICIS assessments.

Since then the Belgian front month has lost some value, last changing hands at €187/MWh on Wednesday, according to trade data reported to ICIS.

The losses were most likely driven by downward corrections on the more liquid French market and sentiment on the wider energy complex.

Belgium is facing an unprecedented tight availability as 960MW Tihange 1 nuclear unit will be taken offline between 13 October - 17 November, meaning that only one out of Belgium’s seven nuclear plants will be online in this period.

Belgian and French day-ahead prices have been delivering at a minimal spread to each other on exchange EPEX SPOT in recent sessions. But the spread jumped to €9.60/MWh premium for Belgium on Friday meaning the stringent supply in Belgium is starting to have a direct impact on delivery prices.

In addition, the prospect of approaching colder weather means France is likely to experience higher demand and have less available nuclear power to export to Belgium in week 42. This can further drive Belgian spot prices up.

Traders active in the Belgian market said November was still unlikely to deliver at current traded levels with one of them expecting a price around €90/MWh in delivery.

December outlook

Nuclear availability should improve in December as 433MW Doel 1 and 1GW Doel 4 nuclear units are scheduled to come back from maintenance on 11 and 15 December respectively.

Improved supply combined with expected lower demand during the Christmas holidays meant that the Belgian December ‘18 Baseload has been priced well below November ‘18.

The contract hit a high of €117/MWh on 4 October and has been trading at €105/MWh ever since.

Nevertheless, any delays to the current maintenance schedule could push the December contract and the front quarter higher.

Traders agreed that the whole Belgian curve seemed overpriced but there are numerous problems with the Belgian nuclear fleet which are unlikely to be resolved soon, therefore the risk premium on the curve is unlikely to be sold off.