Switzerland’s front-month and front-quarter contracts gained more value than in France, Germany and Italy in the week to Thursday, as current hydropower reserves and snow stocks remained close to a multi-year low.
The price rises further highlighted the extent to which low hydropower stocks are translating into risk premium across a number of European electricity markets, from Spain in the southwest to the Balkans in the southeast.
Even countries such as Hungary that share borders with the lowest-stocked markets, and would usually import power from a mix that includes a significant share of hydro, are showing inflated forward curve prices as a result of their neighbours’ dire hydro situations.
Although the Swiss stock situation as it stands is not far below the long-term average, a lack of snow to melt is also feeding into assessments of risk on the forward curve.
The Swiss May ’17 Baseload contract, which was trading at a par with France on 29 March at €30.00/MWh, closed Thursday’s session at a €0.20/MWh premium over the counter (OTC), at €34.25/MWh according to market data available to ICIS.
The rise on the Swiss front month was more accentuated than in Germany and Italy also, with the premium to Germany swelling by €0.35/MWh to €1.35/MWh and the discount to Italy sliding below the €9.00/MWh mark.
A similar dynamic was registered by the Q3 ’17 Baseload contract, which rose by €3.20/MWh in Switzerland to €34.70/MWh between 29 March-6 April. However, the appreciation against France and Germany – Switzerland’s main import routes – as well as Italy – a net importer to Switzerland – were more contained.
The higher Swiss volatility reflected expectations of relatively tight supply margins in the alpine country in the coming months. Snow levels across the country are considerably below average, the federal office for the environment (BAFU) said on Thursday – a factor that is likely to maintain hydropower reserves below the norm during the summer months.
As hydropower met 64% of national production between April and September in the last four years, a lack of hydro reserves increases the country’s dependence on imports from France, hence the opening up of a premium to France to potentially attract imports, and Germany.
Hydro stocks remained below the long-term average for a 31st consecutive week in week 14, data released by the federal office of energy (BFE) showed on Friday.
At 13.9% full, reserves were at the third lowest value of the last 17 years. BAFU expected lake and river levels in the country to reduce until Monday, after a brief spell of rainy weather at the start of week 14 ended in the second half of the week.