Italian power prices plunge as demand in virus-affected North drops

London — Italian forward power contacts posted heavy losses Monday, as plummeting oil prices dragged down the broader energy complex, while demand in the North region -- most affected by coronavirus -- slid in in early March.

The Q2 was last seen trading at Eur36.85/MWh late Monday afternoon, shedding almost 3% compared to Friday, according to EEX data. April was last trading at Eur35.10/MWh, down about 2%. On the far-curve, the Cal 21 dropped nearly 5% to Eur48.90/MWh.

"Considering the cross commodity outlook, other markets as well, I think [the drop] is fair. Moreover, we should not forget that the main trend is already bearish, these variables are simply adding bearishness in a market that is going down by 'itself'," an Italian power trader said.

"I would probably say front-months: M+1, M+2 [are at most risk]. What is happening can last for at least one month, before the situation becomes 'more normal' bit by bit. Hence front contracts could react faster. Moreover, if what experts say is true, with summer this virus should die," the trader added.

Sluggish demand

Total Italian demand in March so far has slid 1.5% on the year, averaging about 5.96 GWh, data from Italian transmission operator Terna showed. Demand in the North zone fell by a steeper 2.4% to 2.03 GWh.

Currently 13 towns in northern Italy remain under quarantine. Coronavirus cases have been confirmed in all 20 Italian regions, with the total number of infections now at over 6,000. The death toll reached 366. The measures taken by the government are believed to be the harshest since World War Two.

Another Italian power trader was definitive in saying he expected a further weakening in demand, adding that he thought the government would extend its measures to combat the virus to other regions. "Some zones outside the North have a few cases. It seems out of control," the trader said.

More bearish drivers

Given that mild temperatures play an important role in lower power demand this year, industrial gas demand will be a key indicator to see the real virus consequence, an Italian power analyst said.

Industrial gas demand came out 38.8 million cu m/day so far in March, more than 2% below the same period of last year, according to S&P Global Platts Analytics.

The weather in Italy is expected to remain warm with temperatures in Milan climbing to up to 6 degrees Celsius above seasonal norms in the middle of this week, according to CustomWeather.

Moreover, hydro, which plays an important role during Q2 in the power mix – continued to recover in early March. Total hydroelectric output in March to date reached 4 GWh, climbing 34% on the year, according to Terna.