The first week of March witnessed a drop in prices in European electricity markets due to high wind production. This is explained by AleaSoft, which analyzes the behavior of several European markets such as fuel, CO2 emissions and electricity, in these first seven days of the month. Over this period, the increase in wind production and favorable weather have led to a general decrease in prices in the main electricity markets of the European continent.
Brent, fuels and CO2
Brent oil futures prices for May 2019 in the ICE market have stabilized in a price range between $ 65 / bbl and $ 67 / bbl since February 15, when it rose to $ 66.22 / bbl, surpassing the range in which it had stood since January 9 with values between $ 60 / bbl and $ 62.50 / bbl. Provided that international tension conditions do not deteriorate and the OPEC does not adopt new restrictions on production, the price of Brent for the coming weeks should resume the path between $ 62.50 / bbl and $ 60 / bbl. AleaSoft consideres that a value of $ 60 / bbl is a market equilibrium value corresponding to the start of spring. In the longer term, AleaSoft estimates that the price will neither have a clear upward nor downward trend, based on the latest estimates of the International Energy Agency that provides for an increase in production by the United States, and also an increase in demand worldwide. Conversely the price is estimated to rather show a slight slow down tendency.
The political situation in Algeria could impact the supply of gas to Europe, and stress the market and trigger prices
The TTF gas futures in the ICE market for April closed on Friday March 8 with the lowest price in a year, 16.73 € / MWh, a value that was not reached since mid-March 2018. In the coming days a certain stability around € 16 / MWh can be achieved and then continue with the downward trend corresponding to spring with higher temperatures and lower demand. Even so, AleaSoft advises to monitor the political situation in Algeria, because the emergence of problems in the supply of gas to Europe could stress the market and trigger prices.
In the last year, the evolution of future prices of API 2 coal for the month of April in the ICE market have remained very aligned with the futures prices of the TTF gas for the same period. However, since February 7, the futures for April in the case of API 2 have remained stationary around $ 73 / t while gas in that period has had a slight negative slope. In the case of coal, it is also expected that with the higher temperatures in the coming days a gradual decline in prices will begin.
In the last three months the prices of CO2 emissions have remained between € 19 / t and € 25 / t, keeping the balance between € 20 / t and € 22 / t
If an analysis of the last three years is made three stages can be identified in the evolution of the futures prices of CO2 emission rights for the reference contract of December 2019 in the EEX market. The first stage starts in February 2016 and spans through the beginning of June 2017 with prices oscillating in a band between € 5 / t and € 6 / t. In this first stage, electric market prices were very low in Europe during the first part of 2016, taking advantage of this circumstance of very low CO2 emissions prices. In the second stage that begins on June 1, 2017 with a price of € 5.20 / t, it reaches € 25.56 / t on September 10, 2018, that is, in fifteen months the price of CO2 multiplies by five. This rise is transferred to the prices of the electricity markets because they are based on a marginal price. From September 2018 to the current date, prices have been oscillating in an average range between € 18 / t and € 24 / t although in some cases they dropped to € 16 / t and in others they again reached € 25 / t. In the last three months the prices of CO2 emissions have remained between € 19 / t and € 25 / t, keeping the balance between € 20 / t and € 22 / t which are considered by AleaSoft as stability values for the coming weeks.
Wind and solar production
Wind production in these first days of March has been much higher than in the second half of February, more than double in the case of Germany and France, 57% more in the Iberian Peninsula, and 20% in Italy. This change in wind production from March is the main cause of the considerable drop in prices in Germany and France in these days of March. It is also the cause of the decline in the prices of the Iberian market, although not as pronounced as in Germany and France.
For the next week AleaSoft foresees that the wind production will decrease in general at the European level, with the possible exception of the Italian peninsula.
Solar production, which includes both photovoltaic and solar thermal technology, has experienced a drop in the last week of around 25% in the case of Germany and Spain and around 7% in the case of Italy. For the next week, it is expected that the trend will reverse and that production values will approach the levels of the end of February.
Source: AleaSoft Energy Forecasting.