A surge in renewable energy in Germany is pushing power prices for 2013 below next year’s level even as natural gas, coal and emissions rise.
Electricity for 2013 was 45 euro cents (61 cents) a megawatt-hour cheaper than next year’s contract today after the gap widened to as much as 1.25 euros at the start of last week, broker prices on Bloomberg show. The country, Europe’s biggest power consumer, will build 7,000 megawatts of solar and wind capacity in 2013, 32 percent more than the additions planned for next year, according to Societe Generale SA.
Germany is installing more wind turbines and solar plants to offset halted atomic production while limiting emissions from fuels such as coal and gas, which typically determine power prices. Industrial users in Europe’s biggest economy are buying supply for next year as Germany’s biggest utility EON AG has already sold almost all of its electricity for the period, helping keep 2012 prices at a premium.
“Much of this premium has to do with new power plant projects coming online, both traditional coal and gas plants and renewable energy,” Sigurd Lie, a senior analyst at Nena AS in Oslo said in a Sept. 14 e-mail. Lie has studied Europe’s power markets for more than a decade.
Germany will build 9,600 megawatts of power generation capacity in 2013 and retire 3,200 megawatts of thermal plants fueled using coal and natural gas, Societe Generale’s head of energy research Emmanuel Fages said in slides e-mailed Sept. 15.
Solar, Wind Share
The country got a record 20.8 percent of its electricity from renewable sources such as wind, solar, biomass and hydro in the first half of the year, the country’s BDEW utility association said Aug. 29. Still, renewable energy is a less reliable form of production as it relies on fickle sunshine and wind while thermal and nuclear plants are able to generate around the clock.
The next-year contract rose to a two-year high of 60.90 euros a megawatt-hour on May 31, the day after Chancellor Angela Merkel’s coalition endorsed a plan to close eight nuclear reactors following the disaster at Japan’s Fukushima Dai-Ichi atomic plant. It was at 56.85 euros at 6:30 p.m. in Berlin today, its lowest close since Aug. 18. The 2013 contract traded at 56.40 euros.
The forward price curve, with 2013 prices at a discount to next year, is “justified, especially because of the prevailing new build of renewable generation,” Peter Krembel, head of power, carbon and cross commodity trading for continental Europe at RWE Supply and Trading GmbH in Essen, Germany, said in a Sept. 13 e-mail.
Industrial users traditionally buy supplies for next year during the autumn, a further impetus to push 2012 prices higher.
“We are in an intensive period of contracting right now,” Per Lekander, UBS AG’s London-based head of global utilities research, said by e-mail on Sept. 15.
The later-dated of the two front year power contracts in Germany was last cheaper in 2008, when energy traders deemed the commodity rally unsustainable as Lehman Brothers Holdings Inc. collapsed, Krembel said. The next-year contract traded at a record 90.80 euros on July 7 of that year.
Coal prices for 2013 are 3.6 percent more expensive than for next year. Natural gas for next winter in the U.K., Europe’s most liquid market, is 3.8 percent more expensive than for the six months through March 2013 while European Union emissions permits for 2013 are at a 7.3 percent premium to next year. A situation whereby later-delivery contracts cost more than earlier ones is known as contango.
“I think it’s a market anomaly and a bit fishy because forward fuel markets and CO2 are in their normal contango,” Lekander said. “I would be really surprised if this is still the situation in six months. It’s more likely to do with hedging and the utilities having sold less of 2013 power.”
Dusseldorf-based EON sold 90 to 100 percent of its 2012 German, Benelux and French power by the end of the second quarter. It had sold less than 60 percent of its 2013 power, according to slides posted on its website on Aug. 10.
RWE AG, the nation’s second-biggest utility, said a day earlier it had sold more than 30 percent of its 2013 German power as of June 30. Georg Oppermann, a spokesman at EON, declined to provide more recent figures. Harald Fletcher, an Essen-based RWE spokesman, declined to provide an update on the company’s hedging.
As Europe’s largest economy slows and reduces energy demand growth, the buffer of spare capacity is widening, Lie at Nena said. Local utilities including Stadtwerke Munchen GmbH are building wind parks that can earn more than double the market rate for electricity.
Some of the country’s 40 million households are installing solar panels on rooftops that earn more than five times the wholesale day-ahead power price under so-called feed-in tariffs. The nation will add 6,000 to 7,000 megawatts of solar power this year, on top of last year’s install of 7,400 megawatts, according to Bloomberg New Energy Finance.
“The installed solar base in Germany is growing rapidly thanks to continued feed-in tariff support,” Jenny Chase, a solar analyst at Bloomberg New Energy, said today by e-mail. “We expect this to weigh on power spot prices, particularly because renewable energy has priority grid access and near-zero marginal cost.”