FBMC MONTHLY: Austria records first monthly discount to Germany

• Austrian spot delivered at a discount to Germany in May

• Germany became net importer

• Netherlands’ exports to Germany surged amid bearish gas

LONDON (ICIS)–Robust margins led to Austria recording its first monthly discount to Germany within the northwest European flow-based market coupling (FBMC) region in May, average hourly data shows. Last month also revealed Austria’s lowest monthly imports from Germany.

The Austrian June Baseload last traded on 27 May, averaging €22.33/MWh, according to trades reported to ICIS. The German equivalent on the same day averaged €22.05/MWh. This suggested participants were betting on a renewed Austrian premium this month.

However, the outlook for June remains unclear amid mixed fundamentals.

NEW RECORDS

Hourly Austrian prices were €0.07/MWh below their German counterparts in May, a switch from the month before where Austria held a premium of €1.21/MWh over German values, according to monthly averages.

Hourly flows show that Austria remained a net importer in May with volumes at 1.2GW/hour, a monthly decline of 37%.

May marks Austria’s only monthly discount to Germany and its lowest German imports since the German-Austrian (DE-AT) common price zone split on 1 October 2018 to offset weakness in the system.

Undersized cross-border interconnectors between Germany and Austria and limited internal infrastructure in Germany had a destabilising effect on FBMC and neighbouring power grids.

ROBUST AUSTRIAN SUPPLY

Austrian supply has been supported by multi-year highs in hydro stocks. ENTSO-E shows that weekly reserves have consistently outperformed figures since 2015 from the beginning of the year. The latest data shows that week 21 stocks held 0.8TWh, double 2019 levels.

Austria has experienced relatively wet weather conditions this year which has reinforced its robust margins and weakened import demand.

Like the rest of Europe, Austria imposed lockdown measures to combat the spread of the coronavirus but it was quicker to implement a strict shutdown than many of its neighbours. The country’s nationwide lockdown began on 16 March and this would have resulted in demand destruction in the second quarter.

The combination of factors, coupled with a transition to warmer summer months, weakened Austrian prompt prices month on month and reduced imports.

This trend could continue into the first half of June with unseasonably high precipitation forecast over the next fortnight, according to the latest short-term MetDesk data.

EMERGING PRICE SUPPORT

German FBMC prices strengthened month on month with bullish supply and demand signals emerging in May.

Wind output recorded spells of unseasonably low levels last month with production at 7.8TWh, a monthly decline of 11% and a yearly decline of 7%, according to data from research institute Fraunhofer ISE.

High wind output is typically key to Germany recording low spot prices and high net exports. Above-average wind output is forecast in Germany for week 23, however outturn is set to fall in week 24, according to MetDesk.

Germany appears to have limited the level of coronavirus demand destruction better than some of its European counterparts with the country’s track-and-trace response to the coronavirus enabling more factories to remain open than across Europe’s other major economies.

The country also began easing pandemic lockdown measures at a faster pace than other countries such as France. Both factors would have supported import demand.

May was the first month in 2020 that Germany became a net importer with 1.8GW/hour, according to average hourly flows. Last year, Germany did not become a net importer until August.

Net imports from France climbed 43% to 2GW/hour, while net imports from the Netherlands were more than 10 times greater with 1GW/hour in May.

Coronavirus-induced demand destruction and strong nuclear availability kept French prompt prices below their German counterparts last month. Nuclear availability is expected to remain robust in early June but possible bullish threats include further cuts in capacity or a heatwave.

Dutch TTF gas prompt contracts breached support levels and hit all-time lows mid-May as chronic oversupply in European gas markets raised concerns of limited flexibility this summer due to weak demand and filling European gas storage.

This helped weaken the Dutch power prompt and the trend is set to continue into June amid a lack of deep production cuts and subdued demand.