ICIS Energy Forum. Power and Carbon Markets. 1

Transcription

1 ICIS Energy Forum Power and Carbon Markets 1

2 Germany-Austria bidding zone split market impact? Irina Peltegova Editor EDEM

3 Germany-Austria bidding zone split market impact? Why split? FBMC test run FBMC first results after split When should German Austrian prices diverge? Liquidity impact/hedging strategies German winter outlook

4 Why split? Insufficient power grid infrastructure Loop-flows destabilise Polish/Czech grids High grid stabilisation costs

5 Why split? generation mix differences

6 Why split? technical details Split came into effect on 1 October 2018 Two separate Austrian and German prices on EPEX SPOT flow-based market coupling (FBMC) auction Germany-Austria CBC set at minimum 4.9GW TSOs can increase CBC in some cases 1-2GW extra capacity could minimise spreads Austria to ensure sufficient capacity for grid stabilisation

7 FBMC test run EPEX SPOT reported 79% convergence between AT & DE price in July-August Traders considered test results unreliable

8 FBMC first results after split Reasons for wide spreads: Strong German wind 3 October German national holiday

9 When should German Austrian prices diverge? Extreme RES production in north Germany e.g. wind above 30GW If wind is close to 40GW critical situation, CBC likely to be cut Public holidays in only one of the countries Extreme temperatures in the south & Austria Other drivers: German-French flows & Czech-Austrian flows

10 Liquidity impact/hedging strategies

11 Liquidity impact/hedging strategies Volatile spreads reflect market uncertainty

12 Liquidity impact/hedging strategies - what are traders telling us? There is generally more interest to trade the German-Austrian spread than outright Austrian contracts. If Austrian liquidity is not there, we just go on the German market for proxy hedges and when there is interest, we trade the spread. Austrian liquidity should improve after the split.

13 Liquidity impact/hedging strategies

14 Liquidity impact/hedging strategies Phelix Futures

15 German winter outlook EUA benchmark to reach 23.70/tCO2e by the end of Q1 19 (ICIS analysts) EUA market to remain volatile Coal hit $100.00/tonne on 2 October

16 GW German winter outlook French risk 65 French Nuclear Availability, Actual and Forecast Jan 01-Feb 01-Mar 01-Apr 01-May 01-Jun 01-Jul 01-Aug 01-Sep 01-Oct 01-Nov 01-Dec Source: RTE

17 GW German winter outlook Belgian risk 6 Belgian Nuclear Availability, Actual and Forecast Jan 01-Feb 01-Mar 01-Apr 01-May 01-Jun 01-Jul 01-Aug 01-Sep 01-Oct 01-Nov 01-Dec 2018 Three-Year Average Source: Engie Transparency

18 Thank you! Irina Peltegova Editor European Daily Electricity Markets (EDEM)

19 The future of the UK electricity market post-brexit Henry Evans Senior reporter, UK electricity market

20 Agenda State of play between UK and EU What might happen if the UK drops out of the Internal Energy Market? Winter outlook 20

21 EU vs UK where do they both stand? EU Commission publishes notice on 27 April detailing the UK s position in the EU s internal energy market in the event of no deal UK government published its Brexit white paper on 12 July following the fabled Chequers meeting pages are the important part!

22 Will the interconnectors stop flowing power? UK currently has three underwater cables connected to the EU 2GW IFA with France, 1GW BritNed with Netherlands and 500MW East-West Interconnector with Ireland UK and EU papers make no mention of flows between the UK and EU halting on 29 March 2019 National Grid, 28 June 2018 Our internal analysis, backed up by two separate external legal views has stated that there is no legal right for the interconnectors to be simply switched off post Brexit

23 What will the commercial arrangements be? What has the EU said? UK will lose access to the single allocation platform for forward interconnection capacity, European balancing platforms and the single day-ahead and intraday coupling. UK s NEMOs i.e EPEX Spot and Nord Pool will become third country operators and will no longer be able to carry out market coupling services between UK and EU What has the UK said? Option 1 - open to remaining in the EU s internal energy market (IEM). This includes remaining part of the EU s Emissions Trading System. One caveat: The UK does not believe that participation in the IEM should require a common rulebook on wider environmental and climate change rules. Option 2 Leave the IEM and explore how interconnector trade continues without automatic capacity allocation. National Grid has contingencies in place.

24 Regulations and REMIT What has the EU said? UK market participants will have to register with the regulatory authority of the Member State in which they are active The registration form has to be submitted prior to entering into a transaction which is required to be reported. What has the UK said? The UK is putting in place arrangements so that, when trading after exit, businesses will have certainty that they will not face substantially different requirements compared to their current obligations under the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT).

25 If the UK leaves the IEM, what happens? Positive for existing interconnectors? Increased price divergence between UK and continental markets possible without market coupling Negative for interconnectors in development. Investor confidence weakens. New projects already delayed Will liquidity in wholesale market be affected?

26 There s more than Brexit What else to look out for this winter? Price cap on retail tariffs is set to come into force. Potentially influences trading in the wholesale market Suspension of Ofgem s UK market-making obligation. Impact on liquidity? UK cash-out price methodology set to change. The price average reference (PAR) for imbalance charges will be based off the most marginal 1MWh of actions used to balance the system. The 1GW NEMO interconnector linking the UK and Belgium is due online in Q1 2019

27 How will the NEMO link flow? Average Belgian Day-ahead Baseload was more expensive than UK during the first half of last winter Trade on the Q1 19 Belgian and UK peaks indicates the UK could be exporting peakload when the cable comes online

28 Contact us Henry Evans Senior reporter UK electricity market

29 The European Carbon Market Is this market going crazy? Philipp Ruf Director Power & Carbon Analytics 29

30 Agenda here Current Market Situation Prices and volumes Reasons for price increases Mid-Term Outlook Fundamentals Price Forecast & Scenarios 30

31 Current Market Situation How much percent did European carbon increase in the last 12 month? a) 0-50% b) % c) % d) % e) % f) % 31

32 carbon price [ /tonne] volume [m tonnes] EUA price developments The second hockey stick in the climate change sphere % in the last 12 months EUA price 32

33 carbon price [ /tonne] volume [m tonnes] EUA price developments Volumes are picking up, EU carbon in second boom period EUA trading volume EUA price EUA trading volume (yearly average) EUA trading volume (quarterly average) 33

34 carbon price [ /tonne] 30 day volatility EUA price developments 30-day-volatility was decreasing, since mid-august massive increase towards historic heights EUA price 30-day volatility 34

35 CBS [ /MWh] carbon price [ /tonne] CDS [ /MWh] carbon price [ /tonne] CSS [ /MWh] carbon price [ /tonne] The link to power prices Power market spreads are key indicator for carbon price changes; especially in key markets like Germany spreads are closely linked to carbon Clean Brown Spread Clean Dark Spread Clean Spark Spread CBS (front month) CBS (front year) CDS (front month) CDS (front year) CSS (front month) CSS (front year) EUA price EUA price EUA price 35

36 carbon price [ /tonne] volume [m tonnes] EUA price developments Why did we see a bull run? What did change that EUAs are suddenly hip again? Legal certainty about Phase 4 reform first vote in Council compromise reached discussion first vote in Parliament Trilogue negotiations rubberstamping EUA price 36

37 [m EUAs] EUA price developments Why did we see a bull run? What did change that EUAs are suddenly hip again? Legal certainty about Phase 4 reform Market stability reserve a game changer (already now) 1,200 1, MSR intake final auction MSR intake Increase intake rate from 12% to 24% for 5 years 2.6bn from

38 EUAs [m tonnes] EUA price developments Why did we see a bull run? What did change that EUAs are suddenly hip again? Legal certainty about Phase 4 reform Market stability reserve a game changer (already now) CO2 position RWE Utilities build strategic hedging reserves hedged [m tonnes] synthetic [m tonnes] strategic [m tonnes] open [m tonnes] 38

39 quarterly market balance [m tonnes] carbon price [ /tonne] EUA price developments Why did we see a bull run? What did change that EUAs are suddenly hip again? Legal certainty about Phase 4 reform Market stability reserve a game changer (already now) Utilities build strategic hedging reserves New players getting active (financials, funds) traded positions traded positions (revised) price 39

40 Mid-term view 40

41 emissions/euas [m tonnes] The fundamentals The MSR is increasing the pressure on compliance companies in the next years Yearly supply is not enough anymore to cover yearly demand Compliance companies will be forced to invest in reduction measures or historic surplus needs to come to market First available are fuel switch from coal to gas Later on industrial abatement projects 2, , , , , , allocation auction other MSR BAU emissions 41

42 absolute holding [m EUAs] cumulative holding [m EUAs] The fundamentals Where does the historic surplus sit? 1, holdings 2, , , utilities industry financial cumulative end of

43 abatement triggered [m tonnes] The fundamentals Where would CO2 reductions come from? Biggest abatement pressure is on power sector in the beginning 180 abatement per sector Fuel switch on short notice available No additional investments necessary Immediate economic impact Once fuel switch capacity is utilised, industrial and power sector need to invest to abate emissions Especially in second half of phase 4, industrials will start abating emissions quicker Power Industry 43

44 carbon price [ /tonne] Price Forecast The base case price Base Case copyright 2017 ICIS analytics.icis.com

45 carbon price [ /tonne] speculative volume [m EUAs] Price Forecast Scenario around additional speculative buying price Base Case SPEC 1: high Base Speculation (Mild Buying) High Buying 45

46 Conclusions Only as of 2019 MSR intake leads to a significant scarcity on the market In 2018 the increases are based on speculative buying and compliance preparation for the MSR Mid-term risks and opportunities Clean spread development: brown, dark and spark spreads Anticipation buying of compliance companies Further behaviour of speculators 46

47 Team contact information Philipp Ruf Director Global Carbon & Power Analytics Marcus Ferdinand Lead Analyst EU Carbon & Power Markets Stefan Feuchtinger Senior Analyst Global Carbon & Power Markets Yann Andreassen Senior Analyst EU Carbon & Power Markets Matt Jones Senior Analyst EU Carbon & Power Markets Anise Ganbold Senior Analyst EU Carbon & Power Markets analytics.icis.com

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