Vattenfall Sees Polish Power at Premium to Germany Through 2015

Polish power prices are set to stay above German contracts through 2015, reversing a historic discount, as the cost of keeping plants open in the eastern European nation is factored in, according to Vattenfall AB.

A capacity premium has applied in Poland since Jan. 1 for utilities that make power plants available at peak times to ensure system stability, Marcus Bokermann, head of market strategy at the Asset Optimisation and Trading division of Vattenfall, the biggest Nordic utility, said March 26. The premium affects Polish baseload prices because it’s priced into bids, he said.

Polish next-year electricity traded yesterday at the widest premium since December 2008 to the equivalent German contract. German power forwards are falling amid a mild winter and slumping coal prices, according to Bokermann. European nations are moving to pay power-plant owners to refrain from closing unprofitable sites in an effort to maintain security of supply.

“The premium is driving the relationship between Poland and Germany,” Bokermann said from Hamburg in a telephone interview. “The premium of Polish prices can hold for quite some time.”

Polish next-year electricity was at a premium of 4.98 euros ($6.85) a megawatt-hour to the equivalent German contract yesterday, according to broker data compiled by Bloomberg. That compares with a discount for Polish prices averaging 3.91 euros since June 2008.

Brainpool Estimate

Electricity production in Poland dropped 5 percent in the first two months of 2014, data from power grid manager PSE SA show. Generating capacity in Germany, the largest European economy, is set to expand by 9.4 gigawatts this year, equal to 5.3 percent of current supply, according to Berlin-based consultant Energy Brainpool GmbH.

Germany’s winter was the fourth-warmest for records going back to 1881, state forecaster Deutscher Wetterdienst said Feb. 27. European coal for next-month delivery reached the lowest price since 2010 on Feb. 26, according to broker data compiled by Bloomberg.

The premium will remain even after Poland installs transformers on power links with its western neighbor to curb unplanned electricity flows and improve system security, according to Bokermann. Siemens AG will build the first transformer on the Mikulowa-Hagenwerder link by the end of 2015.

“Even with phase shifters, the cross-border capacity isn’t likely to reach levels that would allow for equalization of prices,” Bokermann said.

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