Analysis: Czech, Hungarian far curve electricity trading could shrink

31 December 2013 12:48 Source:ICIS

Trading on the far curve in the Czech and Hungarian electricity markets could be hit by falling prompt prices, sources have said.

It turned out to be cheaper to buy Czech and Hungarian electricity on the prompt market in 2013, compared with prices buyers had got earlier when they struck forward contracts for delivery over the year, ICIS data shows.

This because prompt prices have been pushed down by supply from renewable energy sources. If the trend continues, buyers could stay away from far curve trading due to fears they would be locked into higher prices on the forward market than they would later pay on the prompt when they actually take delivery of the electricity.

Additional energy in the grid

On the Czech electricity over-the-counter market the 2013 average outturn of Day-ahead Baseload contracts was €40.87/MWh until 30 December.

This is 7% lower than the delivery price for the Calendar Year ’13 product, which settled at €43.85/MWh on 31 December 2012.

Traders agree that a key influence on Czech spot prices is wind power generation in Germany.

“While it is not the main factor, it is safe to say that the Czech prices mirror the German market on a windy days,” one Czech traders said.

Additional supply is coming from Czech domestic renewable generation, which doubled to 2.9TWh in second quarter of 2013, the most recent period for which there is data. Supply from Czech renewable installations could fall in 2014, however, as the Czech senate will cut subsides for this kind of generation ( see EDEM 13 September 2013 ).

In Hungary, supply was boosted by an increase in hydro power output throughout 2013 compared with 2012. “Nobody expected that amount of water in the region. It was one of the best over the last 15 years,” one trader said.

The extra supply meant spot prices on the Hungarian electricity market averaged €45.54/MWh throughout 2013, 9% lower than the last assessed value of Calendar 2013 on 31 December 2012, at €50.00/MWh.

The high domestic supply also lowered demand for cross-border capacity to import power into Hungary from Austria and Slovakia. This pushed down the price in monthly cross-border capacity auctions and made it cheaper to flow power into Hungary, depressing prices on the spot market further.

Reductions to the Bulgarian and Romanian export tariffs increased energy flows into Hungary from these countries and also contributed to Day-ahead outturning below the Cal ’13 delivery price. Karolina Zagrodna and Sophie Udubasceanu

By Karolina Zagrodna