Highlights from our Market Expert View Summer Edition

Helicopter view on intraday auctions 

The European intraday electricity markets have seen significant growth in trading volumes and liquidity in recent years. Before the introduction of the new pan-European intraday auctions, different countries employed varied structures, with some relying on continuous trading, while others, like Spain and Italy, used multiple intraday auctions. The Capacity Allocation and Congestion Management (CACM) regulation aims to harmonise cross-border capacity allocation and establish one single European market. Therefore, three pan-European intraday auctions (IDA) have been implemented and gone live on June 13. These auctions aim to provide better price signals, promote competition, increase liquidity, and facilitate the sharing of energy resources. Overall, the integration of these auctions is expected to enhance market functionality and help manage unexpected changes in supply and demand, leading to a more efficient and harmonised European intraday market. 

The overcoming of the PUN 

Italy’s spot exchange was launched 20 years ago in 2004. Since then, it has been the only market in Europe with different prices for producers - remunerated at the zonal price - and consumers, who all pay an average of prices weighted by the volumes settled in the spot, known as Prezzo Unico Nazionale or PUN. Starting January 1, 2025, a significant change will occur in the Italian spot exchange with the phasing out of the PUN, marking a major shift in market design. 

After a 12-month transitional period where consumer compensation will essentially keep the buy price unchanged, the new market design will be implemented. The reference price will be zonal for both sellers and buyers. Volue conducted an analysis with different scenarios of fuels, carbon, and renewables installations up to 2027. The main qualitative takeaway suggests a potential increase in cross-zonal price spreads which could lead to new consumption growth in the coming years, particularly benefiting the South and the islands with lower power prices. 

Bearish fundamentals in the carbon market prevailing 

After a considerable collapse in CO2 prices earlier this year to almost 50 €/t due to awareness of weak fundamentals, carbon prices have settled at moderately higher levels over the last couple of months. Still, we consider awareness of the very low 2023 emissions, which seems to have been lower than market expectations, and lack of recovery in power and carbon intensive industries, to weigh on prices this year. Also, higher auction supply volumes this year than last year due to frontloading may also further be absorbed in the market.   

Perspectives on the international coal market 

The international coal market is becoming increasingly segmented due to the EU embargo on Russian imports and sanctions imposed by the U.S. on Russian coal and logistic companies. Perret Associates expect international seaborne imports to reach a new record in 2024 at 1,097 million tons, up 1.7% year-over-year. This is thanks to strong growth in Southeast Asia and the Indian subcontinent, while Chinese imports are more uncertain. EU imports could drop to just 24 million tons. Overall, the company expects a rebalancing in 2024, following the sharp drop in 2023. 

Nordic capture prices 

In recent years, the increase in renewable production in the Nordics and neighboring countries has caused significant fluctuations in power prices. Notably, mid-day electricity prices have constantly dipped, a trend directly linked to peak solar PV production aligning with increased wind power production and/or low demand. This “price cannibalism” occurs when prices fall with increased production. The misalignment of renewable production and high power prices lowers the captured prices from wind and solar PV, resulting in reduced revenue for producers.   

In the coming years, more consumption is expected to enter the energy market to balance the continuous build-out of low-cost energy sources. This could dampen some of the lost income potential for intermittent production, increasing captured prices from the levels observed recently. In the long-term, more flexibility, such as improved grids and batteries, is needed to ensure the financial viability of renewables in the Nordic electricity market. 

Nordic power prices: a downside this autumn? 

Looking at the European power balance, the trend from last year with reduced thermal production will continue this year. We see a 15 TWh increase in Nordic consumption, while the rest of Europe has seen consumption flattening out, with only a minor increase expected in the second half of this year. Adding 100 TWh to the European power balance puts many countries in a pressured situation when weather-driven production occurs. This also affects Nordic prices through massive import. As demand for gas and coal production decreases, we anticipate that a healthy gas storage will bring down the gas market and also affect CO2 prices during the autumn. Expectations for lower gas and CO2 prices will bring our power price simulation from a neutral signal to a massive bearish signal for the rest of the year. Hourly prices will be volatile, and weather forecasts will be important for the short-term development this year, as the hydro power situation is close to normal in most reservoirs following this year’s snowmelt.  

Following up on the question during the webinar about new reductions on the Eastern borders of France, we are sharing the latest official communication published by RTE: RTE – Update regarding the situation on the French Eastern Borders | JAO S.A. Leading service provider for TSOs