Spanish power prices stay bearish but premium to France to persist

Author: Cem Bektas

2020/04/07

LONDON (ICIS)--Spanish power prices across the curve are expected to maintain a bearish trajectory throughout the nationwide coronavirus lockdown period which was recently extended until 26 April, with further extensions possible.

Nevertheless, forecasts for below-average wind generation would support Spanish spot prices,  allowing France to continue exporting power to Spain. This in turn should keep Spanish near-curve contracts at a premium to their French equivalents.

SPREADS AND FLOWS

As Spain enters its fourth week of nationwide lockdown, power contracts have continued falling. The bearish outlook is not expected to change at least until the end of the state of alarm.

Separately, all sectors deemed non-essential have been suspended at least until 9 April. The measures have negatively impacted Spain’s power demand.

The average daily demand stood at 580GWh between 30 March – 5 April, according to Spanish grid operator REE. This represents an 11% drop year on year.

“I don’t think we are going to have a V shape recovery,”said a trader involved in the Spanish market.

Despite the bearish movements, Spain’s near-curve products maintained a premium to the French equivalents.

On Wednesday 1 April, Spain’s front month was assessed €7.775/MWh above the French counterpart. The Spanish Month+2 and front quarter also held premiums of €8.825/MWh and €7.075/MWh respectively.

The premiums are likely to remain as below-average wind generation is forecast until the end of week 16 in Spain, according to MetDesk. This means that more expensive gas-fired power will step in to fill the supply gap, supporting spot prices and by extension capping losses on the near curve.

At the same time, French prices will remain pressured by relatively healthy nuclear availability which is expected to stay at an average 71% between 6-12 April or only 2% below the 5-year average, according to data from French grid operator RTE.

France has been exporting power to Spain in recent weeks, albeit in smaller volumes. The trend is likely to continue until the end of the Spanish lockdown.

Net hourly French exports to Spain averaged at 458MW between 30 March and 5 April, down 77% year on year, ENTSO-E transparency data showed.

NATIONWIDE LOCKDOWN LINGERS

The Spanish government implemented a nationwide lockdown on 15 March to tackle the spread of the coronavirus outbreak. The measure was then extended until 11 April.

On 4 April, prime minister Pedro Sanchez announced a second 15-day extension to the state of alarm until 26 April, meaning at least 45 days of lockdown for the time being.

However, sectors considered non-essential and currently suspended until 9 April could resume activity after Easter, pushing demand up.

The French coronavirus lockdown began on 17 March. On 27 March, the country’s lockdown was extended until 15 April.