No End in Sight for German Power-Price Volatility at 10-Year Low

Price swings in year-ahead German electricity, a benchmark contract in Europe, are at the lowest for at least 10 years and unlikely to recover until after the summer months.

The 30-day historical volatility in the price of power for delivery next year more than halved since April to the lowest since at least 2004, data compiled by Bloomberg show. Trading volume in May dropped to the lowest for at least two years, according to data compiled by Trayport Inc.

“Low volatility leads in the long term to lower activity, since the market gets uninteresting for speculative players,” Konstantin Lenz, the Berlin-based managing director of Lenz Energy, who has tracked energy markets for more than 10 years, said by e-mail. “It’s likely to continue until at least the end of summer.”

Trading activity and prices typically drop in summer as traders take vacations and utilities reduce hedging. Companies from Bank of America Corp. to Cargill Inc. pulled out of European power markets as prices traded near the lowest in nine years after the euro region’s longest recession cut demand.

The German year-ahead contract reached the lowest price since 2005 in April, according to data from European Energy Exchange AG. It was at 34.35 euros ($46.83) a megawatt-hour at 11:26 a.m. Berlin time today, down 4.6 percent from the start of the year. The contract’s 30-day volatility fell as low as 4 percent on July 1, from as high as 13 percent at the start of April, data compiled by Bloomberg show.

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