A disconnect of wholesale electricity and gas prices has occurred in most European markets. Gas prices fell in line with low oil prices over the past year while average electricity prices recovered for the first time since 2008 in Spain and Belgium, and to a minor degree in France and the UK.
This trend emerges from a report published by the Agency for the Cooperation of Energy Regulation (ACER), which states however that overall, prices remained below the levels seen in 2008.
ACER also stresses that more precise calculations on electricity cross-border capacity and greater coordination between TSOs is a key objective moving forward, as unscheduled load flows distorted the EU’s Internal Energy Market in 2015, leading to less cross-border capacity available for trade and ultimately to losses of more than €1 billion for consumers.
Looking more specificially at gas prices, ACER notes that a combination of increased gas-to-gas competition, rising length in global gas markets and persistently low oil prices, all played a role in weighing on the wholesale market, which saw NBP month-ahead and German import prices converging towards levels below the €20/MWh mark in 2015, having been above that level for most of 2014.
“The improved diversification of gas imports and the pivotal move towards hub-based models, at the expense of oil linked long-term contracts, are showing positive results in Europe” Lord Mogg, chair of ACER’s Board of Regulators said with reference to the growing role of gas hubs throughout Europe, adding that “efforts to further increase liquidity in Europe’s gas markets will continue.”
The Dutch TTF and British NBP reconfirmed their position as most liquid gas hubs in 2015, with around 19,000 TWh/year and 17,000 TWh/year traded respectively, further widening the gap with other hubs in terms of liquidity and number of transactions for forward products.
Nevertheless, looking at the Italian PSV and Czech VOB, a positive trend of increasing pivotal role of hubs was seen, along with price convergence, narrowing in this respect the gap that there used to be with North West Europe markets, as enhanced cross-border interconnection and gradual implementation of Network Codes progressed. Traded volumes on the PSV were just below 1,000 TWh/year in 2015, showing however an annual compounded growth rate of 60% in the period 2012-2015.
The EU’s market integration policy also affected neighbouring countries, including Ukraine which is “benefiting from this” the report says, with reverse-flows capabilities on the EU borders having allowed Ukraine to tap into EU hubs and thus to secure a hub-based source of gas supply. Total volumes of natural gas imported by Ukraine from the EU in 2015 stood at 9.5 Bcm, compared to 6 Bcm of Russian imports. In comparison to the previous year, imports from the EU increased by 87%, while Russian imports decreased by 58%.
On the supply side, indigenous production continues to decrease in 2015, accounting for less than 30% of gas supplies in 2015, increasing further the EU’s dependency on imports, ACER finds. The agency expects that by 2030 the share of domestic production could drop to below 20%.
LNG imports increased notably, due to improved economics and the growing global supply and lower than expected demand in Asia. Asia LNG prices showed a progressive convergence towards European hub prices, falling to just above the Eur20/MWh mark in 2015.
Russia continued to be the main gas supplier to the EU in 2015, with a share of around 30% of supplies (42% share of imports from third countries). Norway was the other key EU supplier (25%) followed by Algeria pipeline and LNG (7% in total). Overall, LNG imports totalled more than 12% of EU supplies in 2015, a 18% increase compared to 2014. Qatar is the key LNG supplier, followed by Algeria.
Low hydro levels lift Spain electricity prices
Wholesale electricity prices in Germany, the Nordic and Baltic regions and Italy continued the downward trend that started in 2011, partly due to rising renewable generation, and higher-than-average water reservoirs levels in Norway and Sweden where prices were down from above €30/MWh in 2014 to the mid-20 in 2015.
In Italy, prices hovered around just above €50/MWh, having been in the mid-50 range for most of 2014.
Low hydro generation in Spain and the fact some 24% of nuclear capacity was offline for most of the year led to price increases in Spain (from just above Eur40/MWh in 2014 to around Eur50/MWh in 2015) and Belgium (from around Eur40/MWh to around Eur45/MWh in 2015). A slightly less relevant increase in wholesale prices was observed in France and the UK.
ACER is to publish its recommendations on wholesale gas and electricity volumes on 9 November, together with the remaining three volumes of its annual report.