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French power 'most likely' to hit Eur3,000/MWh this winter: Engie trader

Highlights

French power prices hitting the Eur3,000/MWh maximum price cap this season has become "almost a certainty" amid the current environment of low nuclear availability as France braces itself for imports from more expensive neighbours such as the UK, Nicolaj Janss Lafond, senior cross-border trader at Engie, told the audience at the Emart conference in Amsterdam Friday.

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"That this winter we will hit that price cap in France is almost a certainty," Lafond said during a power trading panel at Emart. "At some point this winter France is going to have the need to import from the UK in the most expensive hours."

UK network operator National Grid's Strategic Balancing Reserve, a tool that allows the TSO to ensure lights stay on at times of high demand, can only be used when power prices hit GBP3,000/MWh.

In France, power prices are capped at a maximum of Eur3,000/MWh and a minimum of -Eur500/MWh, according to the Epex Spot power exchange.

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The interconnection capacity between France and the UK currently stands at only 2 GW and can flow both ways.

"How is it going to work if the cap is Eur3,000/MWh and we will not be able to extract the strategic reserve from the UK which stands at GBP3,000/MWh," Lafond said.

The UK's electricity margins will be "tight but manageable" for winter 2016-17, with an improved de-rated margin expectations of 6.6%, which includes the 3.5 GW of contingency balancing reserve services procured for the period, National Grid said last month.

National Grid said in October that it expected a total maximum technical capacity of 73.7 GW of generation, with a de-rated generation capacity of 55 GW, after accounting for any unplanned outages, breakdowns and/or any other operational issues that might stop the plant from producing power.

"I believe the French cap is too low and should be much, much higher," Lafond said.

Asked by S&P Global Platts what would be a more appropriate French power price cap, he said: "Let's start at Eur10,000/MWh and see where that takes us."

Lafond said the cap should increase in future to reflect that conventional power generators will have to cover their costs even running only "a few hours a year."

"In the future more and more capacity will go down and we will have more situations when we will hit these prices," he said.

Lafond acknowledged that the current French tightness is a unique situation, but said the market is not ready to face uncertainty.

"You can have these kind of accidents, like in France, and in Switzerland we will see with the referendum -- are we actually planning for these events?"

--Ana-Maria Tolbaru, ana-maria.tolbaru@spoglobal.com
--Edited by Jonathan Fox, jonathan.fox@spglobal.com