Power Markets Review: December 2019

In the latest edition of our monthly power market blog series, Head of Sales Trading, Fanos Shiamishis takes a look at changes across commodity markets throughout December, as well as the drivers behind them.

Power

Summer 20 power softened throughout December driven by the bearish gas market. It now trades at around £39.00/MWh, a loss of over £4/MWh from the beginning of last month. With temperatures across UK and the rest of Europe out-turning higher than seasonally expected, December 19 domestic demand remained low.

Gas

The Summer 20 gas contract experienced an even bigger loss (around 20% of its overall value) than the UK Power Summer 20 contract which was down around 10% between the start and end of the month. The seasonal gas contract lost around 7 pence per therm, now trading near the 30.35 pence per therm mark. This was due to a low draw on UK stocks, whilst LNG shipments to the UK remained high, adding downward pressure on the Summer 20 contract, as did the mild temperatures for winter.

The risk premia added to UK/EU gas during late November and early December also retracted during the final week of December, with Ukraine and Russia agreeing a new contract to allow the trading of gas. The previous contact had been set to expire on the first of January 2020.

Oil

Brent Crude has shown steady, consistent gains recently. Oil has gained around $5.40/barrel from December open - now trading at around $68.06/barrel. Risk on global oil prices is increasing due to both a draw on US stocks, as well as heightened tensions between the US and Iran.

Coal

Conversely, coal (ARA Spot) has seen a consistent downward trend since December 1st. Having started last month at $58.65/tonne, the commodity has lost almost $6 in value, now trading at around $52.75/tonne. This has been caused by softer global LNG prices disrupting the “merit” order and reducing coal demand on top of an already mild winter.

Carbon

Carbon (EU Allowances) meanwhile have remained fairly steady over the period in question. Opening December 19 at around €24.33/tonne, Carbon is now trading at around €24.15. This represents something of a leveling off in value from late-December, where Carbon rallied to €26.59/tonne before losing value once again. The preceding November downtrend prompted increased buying and caused a price rally into the holidays. Analyst reports later in the month cited UK allowances to be auctioned monthly throughout 2020 before exiting the next phase (to be replaced by an alternative UK/EU arrangement). The last last few days of December and early January has seen EUA’s soften.

System Prices

System Prices showed a far larger spread between maximum and minimum in December than they did in November, with maximum prices hitting £160/MWh, whilst minimum prices reached minus £88/MWh, continuing the trend of more common negative pricing. This range is around £80 larger than in the preceding month.

However, the high system price was for just 1 half hourly period on 9th December when the system was 1.6GW short - mainly due to the demand being higher than predicted and the wind outurn being lower than predicted.

The low system price was set on the 8th Dec, which was an exceptionally windy day, where there were negative prices for a large part of the day due to wind generators being constrained off. If you take this outlier away, then the next lowest system price was just £-4.

Day Ahead N2EX

Day Ahead N2EX prices, hit a peak of €58.41 In December, a rise of nearly €6/MWh on the preceding month’s highest value. The minimum value of €31.43/MWh represents a markedly less dramatic fall of around €1 on November’s nadir.

All prices correct as of 07/01/2020.