SEE spot prices set to rise on increased demand, colder weather

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SEE spot prices set to rise on increased demand, colder weather – EQ

Date: January 4^th 2022

Author: Tanja Srnovršnik

Category: Trading

Topic: Electricity

After the latest significant easing of south-east European spot power prices, they are expected to move toward EUR 200/MWh next week due to increasing consumption and colder weather, Montel’s Energy Quantified (EQ) data shows.

After halving over the Christmas weekend from records of over EUR 400/MWh at the start of last week, south-east European spot power prices have declined further during the New Year week and the start of this week due to bearish fundamentals. These include strong wind power output and increasing temperatures, in addition to “a dramatic fall in gas prices,” said Eylert Ellefsen, senior analyst and hydrology expert at EQ, on Tuesday.

The February contract on the Dutch TTF hub traded at below EUR 70/MWh at the start of this week, a significant decrease since 21 December, when it peaked at a record high of EUR 187.79/MWh.

“Due to the bearish fundamental development, at the start of 2022 spot prices across central western and south-eastern Europe were traded at prices lower than the gas short-run marginal cost (SRMC) level, unlike what we saw before Christmas when spot prices were higher than the gas SRMC due to low wind power output,” said Ellefsen.

While EQ estimates the SRMC of gas-fired power plants at EUR 174.35/MWh, it sees SEE spot prices averaging between EUR 142.60/MWh in Bulgaria and EUR 155.01/MWh in Slovenia this week. The latest spot price estimates are more than EUR 60/MWh lower than expected a week ago.

Yet the situation could quickly change as European prompt gas contracts surged to over EUR 95/MWh on Tuesday due to a sharp decline in Russian flows to Europe and the onset of colder weather.

Carbon prices have also extended their rally on Tuesday, reaching EUR 86.80/t earlier, the highest level in in nearly four weeks.

A trader told Montel that forecasts for colder weather next week should increase gas demand and prices and could also lift power prices.

The day-ahead baseload prices for delivery on 5 January were the highest in Serbia, where they reached EUR 149.83/MWh. Elsewhere in the region prices were at least EUR 16/MWh lower. The lowest prices of EUR 127.78/MWh were recorded in Romania and Bulgaria.

EUR 45/MWh rise

EQ expects south-east European spot prices to increase by an average of about EUR 45/MWh next week compared to the current one, to around EUR 190/MWh.

Romanian wind power output and combined hydropower output in Romania and Serbia should remain strong at 1.1 GW and 3.3 GW respectively.

Meanwhile, power consumption in both Romania and Serbia will increase by about 1 GW compared to this week, to 13.4 GW. Romanian temperatures will drop 3.6C to around 0C. A further increase in power demand and falling temperatures are expected a week after that.

Hungarian power contracts for the second week of January 2022 traded at EUR 233.53/MWh on the EEX exchange on Monday, while the contracts for week 3 traded at EUR 237/MWh. The February contract last traded at around EUR 290/MWh.