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Belgium Nuclear Halts Boost Power Premium on Supply Risk

Belgium Nuclear Output
A nuclear power plant in Tihange, Belgium. Two reactors, Doel-3 and Tihange-2, have been stopped since March 25, 2014. Photographer: Eric Lalmand/AFP/Getty Images

Belgian power prices are soaring on concern that two nuclear reactors will remain shut into next year, potentially threatening supplies to factories.

The premium for Belgian wholesale costs for the fourth quarter over those in the Netherlands closed at a record yesterday, while the spread with France widened almost sixfold in the past month, according to broker data compiled by Bloomberg. If halts at GDF Suez SA’s Doel-3 and Tihange-2 are extended into winter, the nation would be “structurally dependent” on imports, Elia System Operator SA said yesterday.

Belgium’s decline in nuclear output dates back to 2012, when GDF Suez closed the units after flaws were found in the reactor vessels. They resumed output in May 2013, only to halt again in March. The Paris-based utility this month extended the shutdown of a third reactor by more than three months after turbine damage. If the halts persist, it’s not certain factories will get the power they’ve bought for this winter, according to Brussels-based Febeliec, a group of energy-intensive users.

“These are big nuclear stations, and if this amount of production is suddenly missing in a power market of the size of Belgium, it has a significant impact on the power price,” said Roland Vetter, head of research at CF Partners U.K. LLP, a London-based trader and adviser. “Interconnections with the surrounding countries aren’t very good and the liquidity is limited due to quite small market size. That’s why the nuclear outages have been driving the price,” he said yesterday by phone from London.

Single Market

Belgian power for next quarter was 9.25 euros ($12.20) a megawatt-hour more expensive than the equivalent Dutch contract at 2:30 p.m. Brussels time, according to broker data. Its premium over French electricity was 6.90 euros today, compared with 1.25 euros a month earlier.

Brussels, the Belgian capital, is home to the European Commission, the regulator of the 28-member European Union, whose vision it is that electricity should flow seamlessly across borders to where it’s needed most.

Under normal temperatures and average output from solar and wind plants, Belgium won’t need imports to meet demand during the winter, according to Entso-e, the European grid group. In colder-than-average weather, when renewable supply is low, the nation requires as much as 1,500 megawatts of imports to meet peak demand, according to its last Winter Outlook in November. That’s enough to meet demand of about 3 million homes.

There is a risk of shortages this winter, Axelle Pollet, an Elia spokeswoman based in Brussels, said yesterday by e-mail.

‘Bad Weather’

“We have planned differently the needs of maintenance on our grids,” she said. “We work with the producers to adapt their planning of maintenance as well. If we know there will be bad weather conditions, the need for power will be important all over Europe and the lack of available imports may become a reality.”

Belgium, which gets about half of its power from nuclear, can import about 3,500 megawatts from France and the Netherlands. The most critical months for the grid are January and February, when demand is at its peak, according to Elia.

Belgium may increase its use of gas-fired generation to make up some of the shortfall from the reactors, according to Citigroup Inc. The outages are providing “some relief” for gas prices in a well-supplied market, Seth Kleinman, an analyst at the bank, said in an e-mailed note today.

Results from more safety tests on GDF Suez’s 1,006-megawatt Doel-3 and 1,008-megawatt Tihange-2 reactors are due in autumn, after which the regulator will decide whether the units are safe to restart, the company said Aug. 21. These two halted units are costing 40 million euros a month, according to GDF Suez.

Turbine Damage

Its 1,039-megawatt Doel-4 will be shut until at least January after “significant damage” was found in the plant’s turbine in September last year, GDF Suez said Aug. 14.

“This poses some risk of blackout in the winter 2014-15, but only under extreme conditions,” Joerg Seidel, the Hamburg-based head of power market analysis at Vattenfall AB’s Asset Optimization and Trading unit, said yesterday by e-mail. “The most efficient way to solve this is to expand the physical transport capacity between Belgium and the Netherlands.”

The lack of investment in interconnectors is a result of fragmented energy policy across Europe, according to a research report from JPMorgan Chase & Co. today.

“This situation demonstrates the need to address underinvestment in generation,” Nathalie Casali, a London-based analyst at the bank, said in the note.

Power Supply

Energy-intensive users are “extremely” worried about Belgium’s power-supply situation, Febeliec said in an Aug. 21 statement. “It is no longer certain whether companies will be able in the next autumn and winter period to obtain the electricity they bought in order to guarantee their company’s continuity,” said the group, whose members include steelmaker ArcelorMittal and chemicals producer Solvay SA.

GDF Suez modified the maintenance schedule for its Tihange-1 reactor to make sure it is available for the start of winter to increase supply. Work will begin Aug. 30 and will end Oct. 16, the company said Aug. 21.

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