Hydropower, selling tenders boost Balkan power liquidity in April

LONDON (ICIS)–Stronger hydropower production and selling tenders by regional producers boosted liquidity at most of the Balkan day-ahead power exchanges during April.

But market participants have started to price risk premium into contracts as Balkan reservoir stocks show the first signs of decreasing.

If hydropower dries up in the coming months, it could put a stop to the selling tenders that have supported liquidity in the last few months and put Balkan markets on a level with the historically tight Hungarian market.

Narrower spreads to the Hungarian market would make cross-border trading in the region less attractive, weighing on liquidity.

April volumes

Serbian exchange SEEPEX saw the biggest rise in volumes during April ’18, with traded volume up by 253% year on year and 62% month on month.

Bulgarian IPEX volume was up 40% compared to April ’17 and 23% on March and at Croatian peer CROPEX volume was 41% up year on year but down 30% compared to April ’17.

Traded volume at the most liquid regional exchange, Hungarian HUPX, did not see as significant a change in April ‘18. Volume was up 4% on April ’17 and 11% on March ’18.

Producer selling

Regional producers, including the Serbian, Albanian and Bosnian incumbents, were on the selling side throughout April.

Serbian utility EPS offered volumes for the front week multiple times during the month and was also selling volumes for delivery during May and June.

Selling activity, or a lack thereof, may have also had an impact on IBEX volumes. During March, Bulgarian producers sold April volumes that extended only to 20 April on the Centralised Market for Bilateral Contracts (CMBC).

After this point, traders looking to buy prompt contracts would have had to go to the day-ahead exchange market.

Discount to Hungary

Another key driver of liquidity during April was likely spreads to neighbouring markets.

April delivered on SEEPEX at an average €2.97/MWh discount to HUPX, which likely made cross border trading attractive.

The discount was likely down to abundance of hydropower in Serbia, pressuring prices.

But as Serbian reservoir stocks plateaued in weeks 16 and 17 and Danube river flows are forecast to decline up to 15 May, this discount could be squeezed and opportunities for cross border trading could dry up along with surplus hydropower.

Outlook

SEEPEX being on the selling side for May and June during the last month may mean that there is less trading activity on the day-ahead during May.

Traders may already be covered for May and will not have to go to the day-ahead exchange market to buy power.

But by the same token, liquidity on IBEX is likely to be supported for a second consecutive month as producers have only sold products for May delivery up to 20 May via the CMBC.

Traded volumes in the Balkan region will largely depend on the availability of hydropower, as this will have an influence on regional spreads and the behaviour of producers.

Although Danube flows, which supply the Romanian and Serbian markets, are currently forecast to fall, reservoir stocks inched up in Bulgaria and Serbia at the end of week 18. This makes it unclear whether Balkan hydropower really is drying up.