French traders fear uncertain year ahead for power-related commodities
By Darren Stetzel in London
Following a year of steady declines in the forward power market, French
traders are approaching 2013 with some trepidation, pointing to the uncertain
macroeconomic outlook and limited upside for power-related commodities.
According to Platts data, French baseload power for 2013 delivery ended
the year Eur3.55 or 7% lower than the first full trading session of the year
at Eur47.45/MWh by December 20, while the peakload contract was down Eur3.80
or 6% at Eur60.20/MWh.
Year-ahead baseload power prices averaged Eur55.87/MWh
in 2011, compared with Eur50.61/MWh in 2012, a difference of Eur5.26 or 9%. (See related chart: French year-ahead baseload (Eur/MWh): January 3 - December 31, 2012).
"Prices feel rather low at the moment, so I don't think it will be a
repeat of 2012 with prices falling most of the time. At the same time, where
is the upside going to come from? I don't expect any big economic
improvements, nor much upside in coal and gas," one power trader at a major
Article continues below...
Request a free trial of: European Power Daily
European Power Daily's uniquely comprehensive package of news and pricing information, provides you with daily updates on new policies, projects, power deals, acquisitions, solicitations, alliances, regulatory decisions and evolving trading markets in Europe. It also produces market assessments from the UK, Germany, Switzerland, France, The Netherlands, Belgium, Spain, Italy, the Czech Republic, Poland and Hungary.
A second trader said that following demonstrations across Europe against
governments' austerity measures, macroeconomic developments would continue to
affect the wider energy market in 2013.
Whether those developments will be
recovery or further demise remains unclear.
European energy demand was dampened by the economic situation in 2012,
and the spread between coal, gas and carbon prices meant that generators
switched to using coal-fired output, with many gas-fired plants sitting
unused for long periods.
France made strides over the year toward replacing aging oil-fired
generation as well as coal-fired plants to conform with EU regulations, but
few gas-fired plants are being built.
Concerns over the low usage of
gas-fired generation have been raised across Europe, with some producers
claiming that gas plant is not profitable due to the organization of the
Capacity market uncertainty
Uncertainty over plans for a future capacity market dominated the power
agenda for much of 2012 after Socialist presidential candidate Francois
Hollande announced his opposition to secondary capacity mechanisms during the
election campaign and again after taking office in May.
The uncertainty hit France's Poweo Production which plans to build two
450 MW gas-fired units at Hambach, northeast France.
The company said these
plans were at risk of stalling if the Socialist government failed to indicate
support for a secondary generation capacity market.
The government said it was worried a capacity market would push up
prices through speculation while French energy regulator CRE said that higher
prices would be justified "on a long-term perspective" due to rising power
demand across peak periods.
Peak demand breached 100 GW for the first time
during the February 2012 cold snap.
In December the government finally announced measures to address the
looming supply-demand gap.
The office of French environment/energy minister
Delphine Batho said that the government had promulgated a decree setting up a
framework for its own electricity market capacity mechanism designed to stem
growth in peak demand.
Under the decree, power plant operators will be
remunerated for availability as a measure to increase supply security, and
consumers will be rewarded for accepting supply interruption during peak
The ministry said the decree requires electricity suppliers to justify,
beginning in 2015, that they can meet their customers' peak demand, thus
making them responsible for measures to ensure a supply-demand balance.
Peak demand has grown faster than overall electricity consumption in
France, about 3% annually, with a 28% increase over the past decade.
As peak demand is often met by firing up fossil-fuel plants, the measure to dampen
peak demand is designed not only to save money but also to reduce carbon
emissions, the ministry said.
Progressive energy tariffs not yet agreed by Parliament
Since his election in May, President Hollande has set out ambitious
energy objectives including reducing the share of nuclear power generation
from 75% to 50% of total output by 2025.
Hollande wants renewable energy to
fill the supply gap, and Prime Minister Jean-Marc Ayrault told parliament the
government was committed to supporting a "massive" energy efficiency program,
and "ambitious" renewable power objectives.
To achieve this, the Socialist government has been seeking to implement
new "progressive" tariffs for power and gas, which are set to promote
responsible consumption and renewable power.
France's Senate has yet to approve the government's energy tariff bill,
however, amid continuing opposition from center-right UMP and Communist party
The bill, agreed early October by France's lower house, would
fundamentally change the way French households pay for gas and power,
charging different rates according to usage, geographical location and age of
A cross-party committee of senators voted October 23 that the bill was
"unreceivable" after a blocking motion was filed by Communist senators.
This motion was upheld by the upper house after a long debate.
The bill is now set
to head to a joint committee of senators and MPs who will try and hammer out
a text suitable for both houses.
Article continues: E.ON coal-fired plant closure triggered industrial action