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German year-ahead power moves above France on CO2 rally

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German year-ahead power moves above France on CO2 rally

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German Cal hits Eur58/MWh first time since 2011

French Cal at Eur57/MWh, ARENH decision looms

Platts Analytics forecasts Eur4/MWh premium by 2026

London — German year-ahead power prices have risen above their French equivalent, reversing a Eur1/MWh discount early March to a Eur1/MWh premium, with the benchmark contract trading at the highest since 2011, driven by record-high EU CO2 prices, exchange data show April 7.

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German Cal-22 baseload traded April 7 as high as Eur58.25/MWh on EEX with year-ahead only briefly trading higher in the aftermath of the Fukushima crisis since 2008.

Prices almost tripled from record lows in early 2016 as EUA carbon allowance prices rallied to trade above Eur44/mt compared to levels around Eur5/mt in 2016.

French year-ahead baseload power was last seen trading at Eur57.10/MWh, the highest in over two years and well above the regulated ARENH price set at Eur42/MWh.

State-owned utility EDF has to sell 100 TWh of nuclear output to domestic suppliers under the mechanism.

Negotiations between France and the European Commission on reform of the ARENH are near the end-game, according to French unions after a briefing with ministers.

Unions are staging a new 24-hour strike against plans to restructured EDF starting April 7.

S&P Global Platts Analytics has been forecasting German baseload to move above its French equivalents from 2022 with the premium increasing to Eur4.10/MWh by 2026, according to its latest Five-Year Forecast published March 30.

"Germany's exit from nuclear combined with the coal phase-out results in a structurally shorter market while we assume that French nuclear capacity will remain fairly stable amid a step up in renewable growth," Platts Analytics' Sabrina Kernbichler said.

"Lifting the ARENH price and increasing volumes sold under the scheme could increase buying demand in the wholesale market as we forecast French baseload to fall to around Eur42/MWh by 2026," the analyst added saying that this could lift French prices relative to Germany in delivery.

"Apart from this, a high carbon price environment is putting more upside pressure on German prices but also having the potential to accelerate the German coal phaseout," Kernbichler said.

Meanwhile, the French government was "accelerating the schedule" for a restructuring of EDF with a law to be debated by parliament between June and October, FNME-CGT, a syndicate of four energy sector unions, said after first talks with the government in March.

The unions oppose the restructuring project with very little detail yet how the reform of the ARENH would impact EDF restructuring.

EDF, which is not directly involved in the negotiations, has been calling for a higher price to maintain its existing nuclear fleet and finance reactor lifespan extensions for its 900 MW fleet.

Many observers note time pressure before the start of the French election campaign in the spring of 2022.

Neither EDF nor the French energy ministry were immediately able to comment when contacted by S&P Global Platts.