French power outlook for H2 2020 remains uncertain

LONDON (ICIS)–The risk premium on the French power contracts covering the remainder of 2020 is likely to persist amid uncertainty in the nuclear schedule and the carbon market.

French nuclear availability could possibly average 5.1GW/day less than the current schedule indicates to meet a 325TWh annual nuclear output target, ICIS analysis shows.

The remaining French power contracts for delivery during the third quarter and the Q4 ’20 Baseload continue with a risk premium. Despite the revised nuclear output target there is still risk of low nuclear availability for the rest of the year.

The Q4 ’20 Baseload shed €5.50/MWh from 1 July to 7 July, according to ICIS price assessments. Meanwhile, the August ’20 Baseload gained €1.93/MWh during the same period and the September ’20 Baseload went up €1.65/MWh.

However, traders believe that EDF could still change its output target again, so that it is able to provide the essential electricity supply in the case of an increase in demand.

Also, French power prices are likely to continue to be influenced by the movements in carbon futures market.

FURTHER NUCLEAR OUTAGES

French nuclear availability is already set to be 3.1GW/day below the 2015-2019 average for the remainder of 2020 but is likely to drop further.

Following EDF’s upwards revision of its nuclear output expectations for 2020, ICIS calculated that French nuclear availability would have to drop a further 5.1GW/day on average for the rest of the year in order to meet the 325TWh annual target.

FLEXIBLE SCHEDULE

Traders polled by ICIS believe that EDF could change their nuclear availability schedule again, with the possibility of delays in the restart of nuclear plants in September, still a low risk of a heatwave in August and/or September and cold spells during winter.

“There is still a risk of heatwave in August and September, rather limited, but the premium on those contracts is reflecting it,” one trader told ICIS.

There may be delays in the restart of nuclear plants in September, which could impact the fourth quarter and pressure EDF to change the target again. There is still potential for the Q4 ’20 premium to reduce a bit but not before September, the trader added.

“This year is a La Nina year and typically this results in an active hurricane season. This brings more wind and warm air to Europe and thus a decrease in demand and higher wind supply,” a meteorologist and analyst said.

However, in the case of cold spells during winter and consequently a sharp increase in electricity demand, French prices may increase a lot, the analyst added.

CARBON INFLUENCE

The EUAs futures market has been a strong influence on the French power curve prices as it is a factor that influences the imports from German power.

The increase of the EUAs price must be on speculation and that makes it difficult to draw conclusions, the analyst said.

“If we leave EUA at €29/tcO2e, I think baseload [delivery] of €70-80/MWh is possible on a seriously cold, calm day in November in France.” However, if there is a strong correction of EUAs back down to around €21/tcO2e, this may result in decreasing French power prices too during the winter season as an effect of the import of German power, the analyst added.

ICIS CALCULATION METHOD

Taking the average of 2GW between the difference over nuclear availability compared to actual generation for the period of 2017-2019 and the outage schedule as of 8 July, ICIS calculated average nuclear generation for the whole of 2020 would be 39.8GW/day.

Converted into TWh this gives a projected total nuclear output of 349.6TWh for the whole of 2020, 24.6TWh above EDF annual target of 325TWh.

Using data from grid operator RTE, ICIS calculated that EDF’s nuclear fleet has generated 178TWh from the beginning of the year until 7 July.

This results in a remaining of 147TWh of generation from 8 July to 31 December 2020 in order to meet the annual target of 325TWh. This converts into an average 34.6GW/day generation for the remainder of the year.

ICIS then added the 2017-2019 average of 2GW difference between nuclear generation and availability to 34.6GW reaching an average of 36.6GW/day of nuclear availability for the remainder of 2020.

According to RTE, French nuclear availability is scheduled to be an average of 41.7GW/day for the remainder of the 2020.

ICIS then concluded that in order to achieve the target of 325TWh annual nuclear output the current nuclear availability schedule needs to be 5.1GW/day less for the rest of the year.