Cold weather in Belgium, France could drive UK Q1 prices higher

Cold weather in France and Belgium could become an important driver for UK power prices in the coming months, as it could restrict electricity flows from mainland Europe, market sources said.

One trader told ICIS he thinks that cold weather in Belgium during the coming four months is likely to restrict flows from France into the UK across the 2GW IFA interconnector, “further tightening the UK market.”

This winter capacity in Belgium has been squeezed by outages at two of the country’s nuclear power plants taking 2GW of power off line since March. The capacity is not expected to return until the end of winter

Capacity margins in the UK are also tighter than in recent winters. This is partly due to fewer coal plants being on line as a result of the EU’s low combustion plant directive along with unexpected outages at three nuclear power stations.

“The UK is dependent on imports from France,” the trader said, “but France in a cold scenario is also dependent on Belgium.”

The trader added that he thinks the risk premium related to this l is not priced into the market on Q1 products yet.

In the last 12 months, power has been exported from France into the UK on every single operational day, Jonathan Dale, UK product manager at generation monitoring company Genscape, said. “This gives a pretty telling view of how important this is to the UK,” he said.

Generally power prices in the UK are more expensive than in France, which is why electricity flows to the UK more. The UK was only exported more power than it received from France 16 times in the last 12 months, Dale added.

Current price spreads look comfortable for the UK to remain a net importer in the near term. So far this winter, the average price spread between the two markets’ day-ahead contracts has been €13.90/MWh. This is 21% wider than the equivalent spread of €10.95/MWh for the same period in 2013. The day in which the spread reached its tightest this winter was 22 October when the value was €1.49/MWh, caused by a spike in the French day-ahead because of outages at two nuclear power plants. A similar situation or a cold weather could have big knock-on effects for UK power prices.

“If we see a serious cold snap over northern France and Belgium, naturally the interconnector looks to suffer. French capacity and loop flows from other regions onto the line will begin to flow instead to support the Belgians as a matter of precedence and quickly you see the UK suffering up to a 2GW shortfall,” he added. Abigail Beall