June/July 2010:

The system price in March lost value significantly. At 57.04 EUR/MWh on the monthly average, it closed 17.2% below the previous month. Price losses are mainly due to continuously rising temperatures, which were even slightly above the norm at the end of the month. Furthermore, water value decreased strongly due to heavy precipitation in weeks 10 to 12, so that the hydro balance improved by the end of week 12 to slightly below -40,000 GWh. However, the tense power plant park situation prevented even further price losses – the return of Oskarshamn 3 (1,400 MW) was postponed several times and is still running at reduced capacity (57%). The NorNed-Kabel (700 MW) remained out of operation and is expected back online in the second half of April. During the first half of the month the situation is expected to stay tense because Forsmark 3 (1,170 MW) will be taken off grid in week 15. Wind speeds in Denmark are forecasted as only moderate with little precipitation in the Nordic area. Initially, temperatures are expected to remain above the norm, but in the second half of the month, they should exhibit a stable to slightly warmer trend rather than a seasonal increase. For the time being, we expect prices in the first half of the month to remain in the range of 44 to 50 EUR/MWh. An improved power plant situation in the second half of the month could have a slightly bearish effect on prices. Therefore, we expect a monthly average price of approx. 48 EUR/MWh.
 

Term prices lost ground continuously with bigger losses at the long end than at the short end. The Cal11 briefly fell below the Cal12 toward the end of March due to the improved hydro balance. The strong price drop at the short end of the term curve was also due to the improved hydro balance. Typically, the Cal12 to Cal15 contracts fell less, supported by stable CO2 prices, which declined slightly just before publication of the verified emissions for 2009. Published on 1 April, the numbers did not really indicate a price direction for CO2 since emissions were as expected at -11.4% in comparison to 2008. Emissions for Bulgaria, Liechtenstein, Malta and Cyprus are, however, still outstanding and it is expected that emissions for these countries have fallen more than 11% - which could create a somewhat bearish price impact. Overall, we do not expect much movement in CO2 prices and anticipate a lateral trend. The long end of the power term curve should therefore remain stable. Weather forecasts indicate colder than normal weather with little probability of precipitation, so that the hydro balance is likely to worsen again. Therefore, we expect the short end of the curve to increase further with the biggest upside potential for the Q4 contract.



May 2010:

 

The seasonally strong decrease in demand pushed down the average May spot price by around 8% below the previous month’s level. The monthly average ranged at 42.98 EUR/MWh, whereby weekends prices remained very low. Coincidentally, wind speeds were very high on the low demand Sundays, which also decreased power import prices in Germany. This effect was possibly strengthened by market coupling on the Baltic Cable, in practice since 10 May. Water played a twofold role in May. On the one hand, over the norm temperatures promoted strong snowmelt, whereby run-of-river power pants had a high production. On the other hand, this snowmelt led to sinking water reservoir levels (snow, reservoir, soil, ground water), which in turn increased production costs from storage power stations during peak load periods. This created an unusually pronounced weekly pattern: The peak load price in May ranged from 21 EUR/MWh to 54 EUR/MWh and was 28 EUR/MWh higher than in April!

The poorer hydro balance, and, in turn, increasing water value also had its effects on term prices. From mid-May, they rallied after a downward tendency in the first half of the month. At the same time, this also corresponded with movements on the fuel and CO2 markets. CO2 prices sank at the beginning of May because fears that the Greek debt crisis could spread to the European real economy pointed to lower emissions. Toward the end of the month, prices climbed up again when the EU and the newly elected British government began thinking out loud on a unilateral step toward a 30% reduction target.

 

From 31 May to 11 June, negotiations under the UN Framework Convention on Climate Change will be taking place in Bonn. Although no concrete results are expected, media reports could provide support. In addition, on 6 June, the German constitutional court will probably decide that the government’s planned runtime extension for nuclear power plants will have to pass the Federal Council. Since the government has lost its majority in the Federal Council after the election defeat in Nordrhein-Westfalen, the opposition may be able to sustain the nuclear phase-out. Aside from expected higher CO2 prices, we also anticipate increasing oil prices and stable gas, as well as coal prices. As a result, we expect the current upward pressure on term
prices to become even stronger amid the tense hydro situation. The dry weather is also likely to support the spot mar