The French power market is under significant pressure due to limited nuclear availability, low reservoir levels, and an unusually cold start to the winter season. Forward power prices have jumped to high levels not seen for several years, but is the market pricing in too much of a risk premium?
Genscape’s fundamental analysis of the north-west European market shows clear strains, as reflected in current spot prices. Not only do we see nuclear outages in France (see table below), but also in Belgium, Switzerland, and Spain. The wildcard is Germany, with rolling refueling outages scheduled for seven out of eight reactors through January and February 2017, itself a decision not usually seen for winter in previous years, and not without further risk.
A broader analysis of the fundamentals of surrounding power markets is required to fully understand the current situation. Using the Genscape EPSI fundamental analysis platform, we have explored it across the length of the forward curve (to 2018). The results are presented in Genscape's Market Update Report. Some highlights:
- The coal forward curve has lifted significantly, in turn lifting the German power forwards. However, in the short term this is being drowned out by the moves in the French market.
- German summer forwards have still been trading below 30 €/MWh – the fundamentals indicate that this is overly bullish.
- What is driving the French forward prices? The chart below presents a fundamental scenario (green) that appears to match the French forward curve (blue). A fairly cold winter and some pessimistic nuclear outage assumptions are needed to drive prices to these levels. Are the risk premiums overdone? The report explains this in detail.
- The latest French forward curve anticipates greater tension in February 2017, the coldest month of the year, than in December 2016. However, EPSI Platform analysis clearly reveals that the risk of high prices is higher in December 2016, driven by constrained nuclear availability in neighboring countries and modest water reserves.
Genscape’s Market Update Report is one report within the European Quarterly Market Insights Report, and provides clear insights into the evolution of key spot and forward markets in the content of supply and demand fundamentals. This report bundle also includes the Infrastructure Update Report, which provides an outstanding perspective on the rapidly evolving power plant infrastructure across Europe. To learn more, or to subscribe to Genscape's European Quarterly Market Insights Report, please click here.
Genscape's EPSI Platform uses a combination of market insight, thorough data research, relevant data streams, and rigorous quality control to provide unparalleled depth and quality of data focused on the fundamentals of the European power markets. To learn more, or to request a call, please click here.