Power Premium Falls as France, Germany Converge: Energy Markets
An E.ON nuclear power plant in Germany.
Hannelore Foerster/Bloomberg
An E.ON nuclear power plant operates in Grafenrheinfeld, Germany
An E.ON nuclear power plant operates in Grafenrheinfeld, Germany Photographer: Hannelore Foerster/Bloomberg
The extra cost to buy French electricity compared with Germany’s is shrinking as the European Union moves toward a single power market for the continent.
French electricity for delivery next year traded today for as little as 1.35 euros ($1.81) a megawatt-hour more than the equivalent German contract. The difference yesterday was 1.30 euros, the smallest difference since February, according to data compiled by Bloomberg based on broker prices. That compares with this year’s high of almost 4 euros on May 17 and an average of 2.50 euros during 2010. The spread traded today at 1.75 euros.
The falling premium shows how the system of so-called market coupling, which routes electricity to where prices are highest, is making Europe’s power market more competitive as the EU moves toward a unified system by 2015. Day-ahead power for France and Germany, the region’s biggest consumers, converged on Nov. 9, the day the nations were coupled for the first time.
“Germany will move closer to France as now there will only be one physical market,” said Dieter Hluchy, a trader at Stadtwerke Hannover AG, an energy supplier based in Hannover, Germany. “It’s now a European market.”
Market coupling, a system of coordination first introduced between France, the Netherlands and Belgium four years ago, allows power exchanges and grid operators to make the most efficient use of high-voltage cables. Norway, Sweden and other Scandinavian markets are linked separately.
‘No Constraints’
The difference in prices for next-day electricity in France, Germany, Belgium and the Netherlands converged at 51.21 euros a megawatt-hour after the markets were joined under the Central Western Europe coupling project on Nov. 9. Day-ahead markets are gauged by traders to determine prices for longer- term contracts, which factories and utilities use to lock in power needs for months and years ahead.
“There were no constraints” on the international cables “and that’s what the system should do,” said Bert den Ouden, chief executive officer of Amsterdam-based APX BV, one of the exchanges coordinating the project.
Trading German and French power markets separately can still be justified because of the nations’ differing generation systems, according to Peter Krembel, Essen, Germany-based head of continental European power, carbon and cross-commodity trading in the supply and trading unit at RWE AG, the country’s second-biggest utility.
French Nukes, German Coal
Germany gets about 23 of its electricity from nuclear generators and 42 percent from hard coal and lignite, according to Bundesverband der Energie-und Wasserwirtschaft, a Berlin- based utility association. France sources more than 75 percent of its power from nuclear reactors.
The premium for French day-ahead power over Germany’s has averaged 11 euro cents a megawatt-hour in the 14 days since they converged on Nov. 9, compared with 3.34 euros in the two weeks before coupling, according to prices from the Epex Spot SE exchange in Paris.
“Coupling is a really good vehicle to bring the markets together and make more efficient use of the existing grid infrastructure,” Tony Cocker, chief executive officer of E.ON Energy Trading, a unit of E.ON AG, Germany’s largest utility, said in an interview at the EMART conference in Amsterdam yesterday.
The difference widened to as much as 9 euros in October 2008, when Paris-based Electricite de France SA, the world’s biggest operator of nuclear plants, kept as many as 16 of its 58 French reactors offline for maintenance, while German prices fell amid the financial crisis. It averaged 2.55 euros in 2009.
Convergence Across Europe
“The ongoing convergence in forward prices all across Europe will continue and ultimately translate into lower premiums” on longer-dated contracts, saidKrembel at RWE. “This is especially true within a low-volatility environment.”
The next-year German contract has traded between 45.05 euros and 55.50 euros this year, compared with 41.60 to 59.50 euros in 2009, according to broker prices compiled by Bloomberg.
“Within a few years the existing market coupling can be increased substantially,” Johannes Kindler, vice president of the European Regulators’ Group for Electricity and Gas said in an interview at the Amsterdam conference yesterday. “We’re thinking about extending it to the east and to the south.”
Epex Spot Chief Executive Officer Jean-Francois Conil- Lacoste also expects market coupling to spread across Europe. The exchange is a venture between Germany’s European Energy Exchange AG and France’s Powernext SA.
“The next frontiers should involve the neighboring countries of the U.K., Switzerland and the southern part of Europe where significant gains can be made such as Spain, Portugal and Italy,” Conil-Lacoste said yesterday in Amsterdam.
Bloomberg tracks power prices from brokers including GFI Group Inc., ICAP Plc and Spectron Group Ltd.
To contact the reporter on this story: Lars Paulsson in London at lpaulsson@bloomberg.net
To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net
Rate this Page