Endesa awaits power price recovery to begin 2022 hedge

Spanish utility Endesa has been waiting for a post-Covid-19 recovery in forward power prices before starting to hedge its estimated 2022 output, as pricing for calendar 2021 and 2022 contracts are affected by the pandemic, chief executive Jose Bogas said.

"We believe forward power prices for 2021 and 2022 are highly contaminated by this depressed short-term scenario of dropping demand and commodity prices," the executive said in a conference call with analysts and investors late yesterday. Futures contracts "should react" in the post-coronavirus recovery phase, he said.

The Spanish calendar 2021 closed at as low as €38.50/MWh on 23 March, down by €9.50/MWh from its €48/MWh assessment on 2 January, according to Argus records. It has since recovered, having closed at €41.10/MWh yesterday.

The second year-ahead product closed at €43.30/MWh yesterday, which compares with a settlement of €46.60/MWh on Iberian power exchange Omip at the start of this year. The contract was seen trading at as low as €39.50/MWh in late March.

Recent forward prices for 2021 delivery indicated negative clean spark spreads in Spain, a situation that would not be sustainable as combined-cycle gas turbine (CCGT) plants are expected to be the main price-setting technology in the country, Bogas said. He did not mention the plant efficiency used in the clean spark spread calculations or elaborate on all cost assumptions.

"We believe that once the Covid-19 fades, prices will again stabilise at the level of €50/MWh," Bogas said.

Endesa had already hedged 100pc of its estimated "price-driven" power output for 2020, which has shielded it from the significant price drops seen in the Spanish wholesale market over the past two months.

It has also hedged about 80pc of its expected production for next year, which is up from about 63pc as disclosed at the end of February.

And like its fellow competitor Iberdrola, Endesa has been benefiting from the low spot power prices as demand from its customers is higher than its own generation, which means it needs to buy volumes in the spot and over-the-counter markets to meet its sales needs.

The utility bought 7.4TWh of power in the first quarter of this year, up from 6.2TWh in the same period of 2019. Its net sales in the Spanish liberalised market dropped by 3.6pc to almost 16TWh, 12.37TWh of which came from its own mainland generation — down by 12.6pc year on year due to lower coal-fired generation.

Endesa's coal-fired output in the Spanish peninsula plunged by 90pc year on year to 352GWh from 3.53TWh. Output rose by 13.4pc to 1.08TWh in the case of CCGT, by 1.7pc to 7.2TWh for nuclear and by a sharp 44pc for renewables, to 3.73TWh.

The rise in renewables came on the back of a recovery in hydropower reserves and higher installed capacity for wind and solar photovoltaic (PV) power. The company generated 2.25TWh of hydropower output, 1.4TWh of wind and 90GWh of solar PV — up from 1.48TWh, 1.11TWh and just 5GWh, respectively, in January-March last year.

By Juan Weik