German future power price spike risk highest in November

The highest risk of short-term price spikes on the German power market in coming years will occur during the early evenings of November as opposed to peak winter demand times, while the largest downside risk will occur on Sunday afternoons in spring and early summer.

This an according to ICIS hourly price forward curve (HPFC) calculations, which give a picture of hourly power prices through to the start of 2021 by taking into account forward contract values at the over-the-counter (OTC) market, capacity outlooks for different power generation sources and a range of different weather scenarios. Click here for more information.

Price highs

The highest spikes in years 2018-20 are likely to occur in late autumn, the HPFC model suggests, rather than in the first quarter when the coldest weather typically occurs boosting power demand for heating.

This late-autumn pattern is due to more power plants typically being offline for maintenance in November compared to the first quarter as operators look to carry out works before the heavy winter starts.

Historically Germany has recorded its highest hourly power prices of the year in the first quarter, and in the summer when power demand for cooling can be high, according to the results of day-ahead auctions held by the EPEX SPOT exchange. This winter for example, price spikes were much higher in January than in the fourth quarter, while in 2013 the highest spike occurred in August.

And the market should not count out hourly prices reaching extreme highs in the summer looking ahead, particularly when hot weather disturbs power plant cooling systems, a trader at a European energy company said.

But the head of trading at another company claimed that “summer spikes are old news”, on grounds they are unlikely to occur as often going forwards. This is because Germany now has a lot of solar power capacity, and heatwaves usually coincide with high solar feed-in. “In the summer, I cannot imagine seeing prices as high as we saw this winter,” he said.

New trend?

A potential trend of the highest spikes occurring in November started to emerge in 2015.

And going forwards Germany might well have the highest spikes in November in coming years, traders agreed.

This cannot be taken for granted though because plant operators can easily adjust their maintenance timings, Kai Hufendiek, professor at the energy department of the University of Stuttgart, said. Plant operators will usually try to avoid maintenance at times of high power prices.

The spikes tend to peak in early evenings when Germany’s power demand typically reaches its highest point of the day, but highs have also occurred in mornings, when power demand is also high but solar power generation still low.

Price lows

Some years ago, Germany recorded its deepest negative prices over the winter nights, due to low electricity demand from business activity coinciding with high wind power. But due to the quick growth of solar power, the highest downside risk later moved to the afternoon hours of non-working days in the second quarter. This is the time of year when typically power demand for heating as well as cooling is low while solar power output peaks at high levels.

Even though Germany’s solar power capacity growth has been considerably below wind power expansion since 2014, the highest downside risk has remained on afternoons.

For example, for hour 16 of the coming Sunday, the German price is expected to drop to €7.79/MWh at the EPEX SPOT Day-ahead auction, according to an ICIS spot price forecast released Monday afternoon.

Further ahead in the second quarter, some Sunday afternoon hours with negative prices are highly likely, the HPFC indicates. laura.raus@icis.com