Price swings in Germany’s intraday power market are set to increase this winter as unpredictable renewable energy makes up for lower capacity caused by closings of fossil-fuel plants, according to Danske Commodities A/S.
Hourly and 15-minute power prices in Germany and France spiked above 300 euros ($395) a megawatt-hour 12 times so far this year, down from 130 times in 2013, as demand declined during Europe’s mildest winter for seven years. Falling long-term prices have led RWE AG and EON SE, Germany’s two biggest utilities, to pledge to close power plants with 16.7 gigawatts of capacity through March 2017. One gigawatt can supply about 2 million European homes.
“Plants shutting definitely has an effect on the intraday markets,” said Bo Palmgren, head of intraday at Danske Commodities, which buys and sells power in more than 30 nations. “It should lead to more price spikes. The traditional producers are going away, and that means renewable producers will have much more impact on the intraday market. They are traditionally volatile,” he said yesterday by phone from Aarhus, Denmark.
Colder weather in winter usually encourages demand for power, pushing up short-term prices. A mild winter compounded with an economic slowdown means European power demand is set to decrease 2.9 percent this year, according to Societe Generale SA. A drive by Germany, Europe’s biggest economy, to almost double power output from renewables by 2035 has made supply more difficult to predict.
An extra 1,005 megawatts of coal and lignite capacity will be halted by the first quarter of 2017, RWE said Aug. 12, taking the total planned capacity cuts to 8,940 megawatts. Its capacity cuts are affecting prices, the company says. There is more risk in the power system this winter, according to RWE Chief Executive Officer Peter Terium.
There are signs that “there is stretch in the market, and as soon as the market picks it up,” prices could rise “very quickly,” he said Aug. 14 on a conference call with analysts.
EON plans to shut 7,741 megawatts of capacity from 2013 through next year, including its 1,275-megawatt Grafenrheinfeld nuclear plant by May 31, according to the company’s latest figures.
Traders will be watching winter forecasts closely for signs of lower temperatures, said Palmgren at Danske Commodities.
Temperatures are forecast to be below seasonal norms for most of Europe in September before climbing above averages in October, according to MDA Weather Services. WSI Corp. forecasts temperatures to be higher than normal through November.
As well as spiking, power prices can turn negative when supply exceeds demand. That can happen on weekends and holidays, when usage slows as offices and factories shut at the same time that solar and wind energy feeds into Germany’s grid. German power for next-day delivery slumped as low as minus 221.94 euros a megawatt-hour on Dec. 24, 2012, on the Epex Spot SE exchange in Paris, according to data compiled by Bloomberg.
Prices probably won’t fall as low this year because the intraday market is more efficient than in 2012, with more participants and tighter spreads between bids and offers, Palmgren said.
The highest price for a 15-minute contract in Germany was 575 euros on March 29, 2013, according to Epex data. That compares with a record 301.54 euros for day-ahead power in July 2006, Epex data on Bloomberg show.