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Normal winter conditions to favor European coal, gas generation: Platts Analytics

Highlights

Exceptional winds last winter skewed mix

Covid impacts easing, cold weather upside

German price forecast bullish to market

London — Increased European power demand this winter versus winter 2019-2020 would favor gas and coal generation if normal weather conditions prevail, S&P Global Platts Analytics said in a press briefing Nov. 5.

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Last winter's mild, stormy conditions saw exceptional levels of wind generation, notably in February, Platts Analytics' Glenn Rickson told reporters.

"Using a five-year average of wind load factors as a baseline for our projection, we see a big drop in wind generation weighted to Germany, reflective of an extended period of high winds across Europe that had not been seen before," he said.

While recovering nuclear and healthy hydro provided flexibility that might otherwise be provided by coal and gas, there was upside this year for both fossil feedstocks "even under Covid-19 conditions", Rickson said.

Indeed Platts Analytics expected a small year-on-year increase in demand this winter, heavily weighted to Q1 because of last year's unusually mild temperatures and an assumption that current lockdowns have less of an impact than those imposed during the spring.

"The story so far is that we are not seeing the same level of cuts in demand we saw earlier this year, reflecting less tight lockdowns," Rickson said.

Added to this was the potential for upside in the form of colder weather and shifting demand patterns, "as we've seen recently with UK supply warnings," he said.

Shift in demand

National Grid's margin notices of Nov. 3 and 4, while not directly connected to lockdown, were for early evening periods that, now a wider lockdown was back in place, would see more people at home than would normally be the case between 4.30-6.30 pm, Rickson said.

"That puts pressure in terms of margins and increases the temperature sensitivity of consumption because this is greater residential use," he said.

Perhaps surprisingly, given EDF's rollercoaster maintenance record this year, Platts Analytics saw little change in French nuclear output year on year.

EDF had drastically lowered its annual nuclear target early this year, only to lift it as conditions improved, Rickson noted.

"We don't take EDF's view at face value, we apply our own de-rating based on historic performance and price response. We saw EDF electively turning down quite a lot in Q1 this year, which is one of the reasons we don't see much change in average winter output year on year," he said.

UK nuclear was an obvious risk point, but low availability had been the case for a long time "and it is still looking low", with another extension recently to Dungeness B's two-year outage.

German forecast

On price the unit was bullish to market for Germany this winter, "where we think the market may be building in last year's high wind load factors," Rickson said.

"It may be valid to assume more volatile weather patterns disrupting the market in future, but if you take the five-year [wind load] average and apply that to the current level of wind capacity you don't get anywhere near the output seen last year," he said.

Platts Analytics' price forecast for Germany saw prices ranging between Eur44-46/MWh in Q1 2021 versus Eur36-38/MWh in the market.