Belgian power summer spreads to France likely to narrow

LONDON (ICIS)–The French near curve power premium to Belgium will remain under pressure in July with Belgian margins set to tighten over the second half of the year while there are limited supply concerns in the French market.

While the Belgian Q3 ’20 contract was initially valued at a premium of €0.41/MWh to the French equivalent when it started trading on 3 February, spreads between the two markets widened and the Belgian contract traded at a €2.69/MWh discount on 23 June to its French counterpart.

That said, the Belgian near curve discount was at its most pronounced in April and May but spreads have since narrowed. On 9 June the Belgian July ’20 Baseload was valued €1.20/MWh below the French equivalent, its narrowest spread since 17 April according to average transaction values.

The current supply and demand outlook indicates that this spread is likely to further narrow.

BULLISH BELGIAN SIGNALS

Belgian prices are expected to face upward pressure from rising demand levels as the economy continues its gradual recovery from a lockdown enforced in March.

Belgian nuclear availability is also set to be weaker than previous expectations, adding further pressure to margins. As the dominant form of electricity generation in Belgium, nuclear availability will be key to the delivery of third-quarter products. Availability is set to have a range of 63-82% with most days operating at 72% for the third quarter. July will have the weakest availability with September the highest.

This is below the outlook for third-quarter availability provided in mid-April when Engie data revealed that nuclear availability would have a range of 72-81%.

Weakened nuclear availability and rising demand profiles could see Belgium run more expensive thermal electricity generation or increase imports which would compound the bullish pressure on prices.

“The delivery of previous days shows Belgium is relatively firm and the downside risk on the weekends looks to have strongly diminished,” said one power trader, citing the revival of electricity demand. Average EPEX SPOT Belgian baseload power prices for the 13-14 July weekend were €19.84/MWh, the highest weekend values since 14-15 March.

LIMITED UPSIDE IN FRANCE

French power prices delivering in third quarter are anticipated to have a limited upside due to high hydro stocks, low gas prices and reduced chance of a heatwave during summer.

This is despite French nuclear availability set to average 56% during July, 12 percentage points below the 2015-2019 average, grid operator RTE showed.

French hydro stocks are at their highest level in 10 years. In week 25, reserves were 2837GWh, an increase of 31% year on year, RTE showed.

With the current low gas price environment, it will be cheaper for France to use CCGTs during peak hours compared to previous years. This could limit the upside for French power during these periods. France has a relatively higher demand for gas-fired power output than Belgium.

The upside is further limited by the decreasing likelihood of a heatwave in the third quarter, according to MetDesk seasonal forecasts.

“The coming summer may be relatively cool compared to the last two summers,” a second trader said.

In general, supply concerns are largely limited. Earlier this month RTE announced that electricity supply was secured for this summer.

CARBON UPTREND QUESTIONED

Strength amassed in carbon in June has supported Belgian and French power curves but questions remain on the sustainability of the uptrend given the fundamental weakness in the market.

Nevertheless, because France is also importing power from Germany when necessary, it is also influenced by the strong rise in the carbon price, the second trader said. “Carbon is really making any price prediction difficult at the moment as it influences the merit order in countries like Germany and Belgium,” he added.

Sources suggested that carbon prices are vulnerable to a collapse without continued fundamental support. A sell-off would trigger significant bearish pressure on the Belgian and French power curves.

Additional reporting by Christopher Rene