Further downside ahead for power on fresh virus fears

Roy Manuell


LONDON (ICIS)–Traders active on European power markets anticipate downside for prices especially in the event of a return to stricter coronavirus-prevention measures across the continent.

Governments have reintroduced partial restrictions to slow the spread of the virus, both on a regional level this week in Catalonia in Spain and on a national level in Belgium. Speculation regarding a second wave of the virus in Europe has already exerted a bearish influence on power forwards.

The German power front year shed 10% over the last two weeks during which cases have begun to rise in several European countries such as France and Spain. The benchmark December ’20 EUA, a key driver of European power forwards, lost 15% over the same period.

If cases and subsequent restrictions were to spread further across Europe, there would be further downside for power prices, according to traders polled by ICIS.

“If we see another lockdown for a large country, that would be really heavy for prices,” said one trader active on the German power market.

A second source that trades German and French power agreed that downside was likely if local lockdowns expand across Europe.

“The next step for the German Cal ’21 Baseload will be €38/MWh. After that we may even see €36/MWh,” he said. The product was assessed by ICIS on 28 July close to €39/MWh.

Both sources said that even if cases do not surge once more, they still expect power market downside for 2021 delivery given the overall weaker macroeconomic picture relative to pre-virus levels.

“I don’t see how the markets can be as optimistic as they currently are. We are basically at the same level as we were before the virus,” the first trader said.


Power demand fell dramatically during the second quarter of the year following nationwide lockdowns imposed across Europe, underlining the extent to which power markets could be impacted by measures to slow the spread of the virus.

It is unlikely that European power demand and curve prices will take as great a hit as seen in April 2020 in the event of a resurgence, due to expected greater preparation for the second wave. The impact is nevertheless widely expected to be strong downside for prices.

Countries such as Spain, Italy, Portugal, and Greece, where tourism accounts for a significant proportion of economic output, would see another notable power demand hit from further restrictions this quarter. This comes despite a recent upsurge in consumption, as borders reopened and tourism returned to the region.


Uncertainty clouds the market in any case, with traders waiting for government measures and a more concrete confirmation of the expected second wave. At present, no country has been fully locked down for a second time on a national level. That said, speculative trading in anticipation of the virus’s potential return could lead to losses over the coming sessions in key European Cal ’21 products.

“While I am more bearish than bullish, it is hard to say,” a third trader told ICIS.

In this unprecendented situation, volatile movements on European power markets are likely to continue over the rest of the quarter.


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