Carbon Tax Drives April U.K. Power Price Divergence with Continent

European power prices, according to Platts’ Continental Power Index (CONTI), fell 6.2% in April to €36.03/MWh compared to March’s €38.43/MWh. The Index was up 5.2% compared to April 2014’s €34.25/MWh.
 
In the U.K., however, the average day-ahead power price rose 8% in April on a month-over-month basis and was up 6% from year-ago levels. The increase was attributed in large part to the fact that on April 1, the Carbon Price Support mechanism rose from £9.55 per tonne of carbon dioxide (/t CO2) to £18.08/t CO2, reducing the relative profitability of coal-fired power generation.
 
Platts’ regional analysis of European power and gas markets in April showed the following:

Germany: Day-ahead power prices averaged €30.22/MWh in April, down 2% month over month and 3% year over year. Hourly wind and solar output averaged 13.5 gigawatts (GW) last month, well above nuclear output of 10 GW. Combined renewables’ output of 40 GW pushed some intra-day hourly prices below zero on Wednesday, April 22. For Sunday, April 12, the day-ahead price settled below zero on the spot exchange.

France: Day-ahead power prices averaged €38.97/MWh in April, down 9% month over month but up 20% year over year. Nuclear and hydro inventories improved last month, easing both tightness in supply and price pressures.

U.K.: Day-ahead power prices averaged £43.62/MWh in April, up from £40.28/MWh in March and nearly three pounds higher than in April 2014. Total demand for the month was 22.7 terawatt hours (TWh), down from 26.4 TWh in March. Wind power production fell to 1.4 TWh in April from 2.3 TWh in March. Gas-fired power production, at 6 TWh, was down 7% in April versus March, while coal-fired production was down 25% at 7.1 TWh. U.K. day-ahead gas prices at the National Balancing Point fell just 1% month over month in April to an average of 46.58 pence/therm. On a year-over-year basis, prices were down 7%. Monthly total end-user gas demand fell 32% last month to 4.7 billion cubic meters (Bcm).

Netherlands: On the Dutch TTF, continental Europe’s most liquid natural gas hub, day-ahead gas prices in April averaged €21.97/MWh, up 1% from March and up 8% from April 2014. Delivered spot prices were range bound in the first half of the month at a relatively high €21.90-€23.25/MWh, but fell back to €21.30-€21.80/MWh by late month. The price drop-back occurred following an April 14 Dutch court decision against full shutdown of the giant Groningen field despite earthquakes in the region.

“Northwest Europe turned to storage gas to meet demand needs on the back of Groningen output cuts and a heavy Norwegian maintenance schedule,” said Platts analyst Alex Froley.
 
“As April began, gas storage levels were already below year-earlier levels, which followed an unusually mild winter,” said Froley. As such, the pace of gas-storage injection this summer would have to be ahead of last summer to refill stores ahead of the coming winter, he said.
 
As April began, gas storage in Germany’s key storage region was at 29% capacity, with total stocks of 6.6 Bcm. By month’s end, storage supplies had slipped to 24%, well below the 63% capacity at the end of April 2014.
 
France, another key gas storage region, entered April with gas inventories of 2.0 Bcm, or 17% capacity, and ended the month higher at 21% capacity. Still, capacity use was well below the 31% at end of April 2014.