London, 26 September (Argus) — Forward prices on the German power wholesale market have been backwardated for most of this year, but discounts to the 2014 contract have narrowed, signalling that the market might be reassessing the risk of plant closures and rising fuel costs.
The German 2015 and 2016 base-load contracts have more than halved their discounts to the calendar 2014 contract since the start of September to around €0.35-0.40/MWh, according to the Argus over-the-counter (OTC) price assessment (see table).
It comes partly as a slowdown in hedging activity from major European utilities, most of which are well advanced in their forward selling programmes, has eased selling pressure.
But ambiguous market fundamentals have left the market uncertain whether the German power curve should eventually reverse into a contango.
Germany's push towards rising renewable power generation remains a concern. The new government is expected to reform the renewable subsidy law (EEG) and rein in the pace of renewable power expansion. But Germany is still likely to add some capacity each year. Offshore wind power expansion, in particular, is expected to progress as network connection problems are being gradually resolved. This will allow the first wave of projects to come on line and around 1GW/yr of new offshore wind power capacity is scheduled to be installed in 2014 and 2015, according to German wind lobby group BWE.
The scheduled commissioning of several power plants over the next two years will further prop up the supply side. Germany will add around 9.5GW of new thermal capacity in 2013-15, largely because of over 7GW of hard coal-fired capacity coming on line over the period. This excludes utility Eon's 1.1GW Datteln 4 unit for which no specific start-up data has been given amid continuing legal problems.
But there are a number of market fundamentals that could support the 2015 and 2016 contracts relative to the year ahead. Germany will have to rely on thermal power generation for the foreseeable future, and coal-fired plants are likely to remain the marginal generation in many hours.
But the backwardation along the German power curve does not reflect the rising cost of coal-fired generation amid a wide contango in the coal market. API 2 coal swaps for 2015 delivery have been on average $6.13/t (€4.60/t) above 2014 swaps so far in September, and the premium widens to $10.38/t for 2016 swaps. And the EU emissions trading scheme (ETS) market continues to be in a slight contango.
Consequently, clean dark spreads for 2015 and 2016 have hovered well below 2014 spreads, increasing the risk of additional plant closures.
Utilities have recently signalled that they will not hesitate to implement more aggressive plant shutdowns or long-term mothballing if market conditions for conventional power generation do not improve. But the risk of plant shutdowns for 2014 is limited beyond those closures already announced to the market. This is as operators have to submit their plans to retire or mothball units to German grid regulator Bnetza 12 months in advance.
Bnetza predicts that 3.3GW of capacity in south Germany could shut down between 2013 and 2018 for economic reasons, in addition to scheduled closures.
And there is some uncertainty over the launch of flow-based market coupling in the central-west European market area comprising Germany, Austria, France and the Benelux countries. Project partners aim to have the new flow-based system approved and technically ready by the end of this year. But a go-live date has yet to be confirmed and market participants in a public consultation have called for at least 12 months of complete results of the flow-based trial run following the launch of northwest European (NWE) market coupling scheduled for November this year.
This could push the go-live date to the end of 2014 in which case the flow-based system would only start to have a full impact from 2015. German day-ahead prices would have been around €1.30/MWh higher under the flow-based system compared with the existing available transmission capacity method in the trial runs so far, which began at the start of this year.
In any case, the market will now observe closely the formation of the new government and the subsequent coalition agreement to get a clear picture on Germany's future energy policy.
Date |
German OTC base load year 1 - London close (outright, Euro/MWh) |
German OTC base load year 2 - London close (outright, Euro/MWh) |
German OTC base load year 3 - London close (outright, Euro/MWh) |
25 Sep 2013 |
39.100 |
38.750 |
38.700 |
24 Sep 2013 |
38.900 |
38.550 |
38.550 |
23 Sep 2013 |
39.100 |
38.750 |
38.700 |
20 Sep 2013 |
38.600 |
38.250 |
38.250 |
19 Sep 2013 |
38.650 |
38.350 |
38.300 |
18 Sep 2013 |
39.350 |
39.000 |
39.050 |
17 Sep 2013 |
39.300 |
39.050 |
39.000 |
16 Sep 2013 |
39.400 |
39.100 |
39.100 |
13 Sep 2013 |
39.400 |
39.000 |
38.950 |
12 Sep 2013 |
39.600 |
39.200 |
39.050 |
11 Sep 2013 |
38.750 |
38.350 |
38.350 |
10 Sep 2013 |
38.500 |
38.200 |
38.250 |
09 Sep 2013 |
38.750 |
38.550 |
38.800 |
06 Sep 2013 |
39.100 |
38.700 |
38.850 |
05 Sep 2013 |
38.550 |
38.000 |
38.000 |
04 Sep 2013 |
37.850 |
37.050 |
36.900 |
03 Sep 2013 |
37.350 |
36.650 |
36.250 |
02 Sep 2013 |
37.400 |
36.600 |
36.150 |
30 Aug 2013 |
36.900 |
36.125 |
35.850 |
29 Aug 2013 |
36.750 |
36.050 |
35.775 |
28 Aug 2013 |
36.600 |
35.950 |
35.600 |
27 Aug 2013 |
36.600 |
35.950 |
35.700 |
23 Aug 2013 |
36.650 |
35.950 |
35.700 |
22 Aug 2013 |
36.700 |
36.100 |
35.750 |
21 Aug 2013 |
36.500 |
35.900 |
35.550 |
20 Aug 2013 |
36.550 |
35.950 |
35.600 |
19 Aug 2013 |
36.450 |
36.000 |
35.600 |
16 Aug 2013 |
36.550 |
36.050 |
35.550 |
15 Aug 2013 |
36.750 |
36.200 |
35.750 |
14 Aug 2013 |
36.600 |
36.100 |
35.700 |
13 Aug 2013 |
36.400 |
35.800 |
35.550 |
12 Aug 2013 |
36.550 |
35.950 |
35.650 |
09 Aug 2013 |
36.500 |
35.900 |
35.700 |
08 Aug 2013 |
36.400 |
35.800 |
35.700 |
07 Aug 2013 |
36.250 |
35.750 |
35.600 |
06 Aug 2013 |
36.400 |
35.850 |
35.750 |
05 Aug 2013 |
36.200 |
35.700 |
35.550 |
02 Aug 2013 |
36.550 |
36.050 |
35.900 |
01 Aug 2013 |
36.500 |
36.050 |
35.850 |
31 Jul 2013 |
36.700 |
36.250 |
36.100 |
30 Jul 2013 |
37.000 |
36.450 |
36.250 |
29 Jul 2013 |
37.250 |
36.700 |
36.550 |
26 Jul 2013 |
37.300 |
36.700 |
36.650 |
25 Jul 2013 |
37.500 |
36.950 |
36.850 |
24 Jul 2013 |
37.450 |
37.000 |
36.850 |
23 Jul 2013 |
37.450 |
37.000 |
36.900 |
22 Jul 2013 |
37.525 |
37.050 |
37.000 |
19 Jul 2013 |
37.400 |
37.000 |
37.000 |
18 Jul 2013 |
37.400 |
37.000 |
36.950 |
17 Jul 2013 |
37.750 |
37.350 |
37.250 |
16 Jul 2013 |
37.750 |
37.450 |
37.300 |
15 Jul 2013 |
37.650 |
37.350 |
37.250 |
12 Jul 2013 |
37.600 |
37.350 |
37.300 |
11 Jul 2013 |
37.650 |
37.350 |
37.350 |
10 Jul 2013 |
37.650 |
37.450 |
37.400 |
09 Jul 2013 |
37.850 |
37.550 |
37.550 |
08 Jul 2013 |
38.050 |
37.800 |
37.800 |
05 Jul 2013 |
38.150 |
37.950 |
37.800 |
04 Jul 2013 |
38.150 |
37.800 |
37.700 |
03 Jul 2013 |
38.250 |
38.000 |
37.950 |
02 Jul 2013 |
38.100 |
37.875 |
37.750 |
01 Jul 2013 |
37.850 |
37.700 |
37.550 |
28 Jun 2013 |
37.525 |
37.525 |
37.350 |
27 Jun 2013 |
37.550 |
37.550 |
37.450 |
26 Jun 2013 |
37.600 |
37.600 |
37.500 |
25 Jun 2013 |
37.500 |
37.500 |
37.450 |
24 Jun 2013 |
37.300 |
37.350 |
37.300 |
21 Jun 2013 |
37.450 |
37.550 |
37.600 |
20 Jun 2013 |
37.800 |
37.850 |
37.850 |
19 Jun 2013 |
37.950 |
38.000 |
37.900 |
18 Jun 2013 |
38.000 |
38.050 |
37.950 |
17 Jun 2013 |
38.100 |
38.000 |
37.950 |
14 Jun 2013 |
38.300 |
38.100 |
38.000 |
13 Jun 2013 |
37.750 |
37.650 |
37.600 |
12 Jun 2013 |
38.100 |
38.000 |
37.950 |
11 Jun 2013 |
37.900 |
37.750 |
37.750 |
10 Jun 2013 |
38.050 |
37.800 |
37.850 |
07 Jun 2013 |
38.500 |
38.200 |
38.100 |
06 Jun 2013 |
38.450 |
38.100 |
38.000 |
05 Jun 2013 |
38.550 |
38.150 |
38.000 |
04 Jun 2013 |
38.500 |
38.100 |
37.950 |
03 Jun 2013 |
38.500 |
38.150 |
38.000 |
31 May 2013 |
38.700 |
38.300 |
38.150 |
30 May 2013 |
38.650 |
38.200 |
38.000 |
29 May 2013 |
38.750 |
38.400 |
38.200 |
28 May 2013 |
38.800 |
38.400 |
38.200 |
24 May 2013 |
38.500 |
38.200 |
37.950 |
23 May 2013 |
38.600 |
38.300 |
38.100 |
22 May 2013 |
38.600 |
38.300 |
38.200 |
21 May 2013 |
38.800 |
38.500 |
38.400 |
20 May 2013 |
38.700 |
38.500 |
38.350 |
17 May 2013 |
38.400 |
38.150 |
38.050 |
16 May 2013 |
38.700 |
38.300 |
38.150 |
15 May 2013 |
38.750 |
38.400 |
38.400 |
14 May 2013 |
38.625 |
38.350 |
38.350 |
13 May 2013 |
38.450 |
38.200 |
38.200 |
10 May 2013 |
38.500 |
38.150 |
38.250 |
09 May 2013 |
38.750 |
38.350 |
38.400 |
08 May 2013 |
38.750 |
38.400 |
38.400 |
07 May 2013 |
38.900 |
38.450 |
38.500 |
03 May 2013 |
38.950 |
38.350 |
38.400 |
02 May 2013 |
38.500 |
37.900 |
38.000 |
01 May 2013 |
38.500 |
37.900 |
37.900 |
30 Apr 2013 |
38.750 |
38.150 |
38.150 |
29 Apr 2013 |
39.300 |
38.500 |
38.700 |
26 Apr 2013 |
39.175 |
38.350 |
38.550 |
25 Apr 2013 |
39.250 |
38.450 |
38.600 |
24 Apr 2013 |
39.300 |
38.600 |
38.900 |
23 Apr 2013 |
39.350 |
38.700 |
39.150 |
22 Apr 2013 |
39.050 |
38.400 |
38.900 |
19 Apr 2013 |
39.450 |
38.900 |
39.400 |
18 Apr 2013 |
39.200 |
38.650 |
39.050 |
17 Apr 2013 |
39.100 |
38.500 |
39.000 |
16 Apr 2013 |
39.650 |
39.050 |
39.350 |
15 Apr 2013 |
40.900 |
40.200 |
40.350 |
12 Apr 2013 |
40.850 |
40.250 |
40.350 |
11 Apr 2013 |
40.500 |
39.950 |
40.050 |
10 Apr 2013 |
40.550 |
40.000 |
40.000 |
09 Apr 2013 |
40.900 |
40.250 |
40.150 |
08 Apr 2013 |
41.460 |
40.800 |
40.700 |
05 Apr 2013 |
41.550 |
40.900 |
40.800 |
04 Apr 2013 |
41.550 |
41.000 |
40.800 |
03 Apr 2013 |
41.400 |
40.900 |
40.750 |
02 Apr 2013 |
41.100 |
40.700 |
40.450 |
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