Power prices in Germany, Europe’s biggest electricity market, probably will weaken for a record fourth consecutive year as utilities add the most coal-fired capacity in more than a decade.
The benchmark year-ahead electricity contract will average about 6 percent less in 2014 than in 2013, according to the median of nine analyst and trader estimates compiled by Bloomberg News.
Expanding generating capacity will provide 17 percent more supply than peak demand, says Bryan Garnier & Co., an investment bank in Paris. Wholesale power prices in Europe’s biggest economy plunged 32 percent since 2010 amid record wind and solar output and the weakest demand in four years.
The cheapest coal since 2009 is spurring utilities to keep building plants burning the fuel. EON SE (EOAN) and RWE AG (RWE), the largest generators, will report lower profit this year, according to analyst estimates compiled by Bloomberg.
“It’s a pretty grim picture,” said Vincent Gilles at Credit Suisse Group AG in London, whose recommendations on RWE returned 16 percent in a year, compared with a loss for the average analyst tracked by Bloomberg.
“Power-price fundamentals are not pointing to improvements in the next 24 months.”Year-ahead electricity prices fell 19 percent to 36.80 euros ($50.30) a megawatt-hour in 2013.
The contract closed at 35.90 euros yesterday, its lowest settlement since March 2005, and at 36.15 euros today, according to broker data compiled by Bloomberg. The benchmark will average 36.60 euros in 2014, compared with 39.06 euros last year, the survey showed.
Energy Markets
Last year’s slump compared with a 2.2 percent decline in the Standard & Poor’s GSCI gauge of 24 commodities.
The MSCI All-Country World Index of equities advanced 20 percent and the Bloomberg Treasury Bond Index (BUSY) lost 3.4 percent.
Power prices may drop as low as 34 euros, the least in a decade, according to Konstantin Lenz, the Berlin-based managing director of Lenz Energy who has tracked energy markets for more than 10 years.
Generating capacity will expand by 9.4 gigawatts this year, equal to 5.3 percent of current supply, according to Energy Brainpool GmbH & Co. KG. Renewable capacity will rise by 5.1 gigawatts and coal plants will supply most of the rest in their biggest expansion since at least 2000, the Berlin-based consultant estimates.
A gigawatt of electricity, or 1,000 megawatts, is enough to power about 2 million European homes. The supply surplus will keep growing as renewable and coal-fired capacity is added over the next 18 months, Patrick Hummel, an analyst at UBS AG in Zurich, wrote in a report last month.
Plant Closures
EON, RWE and Stockholm-based Vattenfall AB, the three biggest utilities operating in Germany, plan to shutter more than 16 gigawatts of unprofitable generating capacity in central-west Europe in the four years through 2015, company filings show.
Power companies have permission to shut plants with a combined capacity of 826 megawatts in 2014, according to data from Bundesnetzagentur, the German grid regulator. If they decide to close or mothball more facilities than announced, power prices may rise, Gilles said.
“What happens to prices in future depends if the utilities are able to cut capacity much beyond what they have said they will do,” he said.
“The problem the utilities have got when it comes to closures is that they want to tell the financial community ‘yes, we will be very tough,’ and they want to tell the regulators, ‘we will be very responsible’.”
Carbon Prices
The anticipated drop in power prices also may be curbed by rising costs for carbon after European Union member states last month agreed to limit emissions permits. As many as 400 million contracts, or about a fifth of annual supply, could be withheld, with the final amount to be determined in a vote by the bloc’s Climate Change Committee on Jan. 8.
Utilities have to buy carbon allowances to cover emissions produced by power plants. The price of carbon permits almost doubled from 2.46 euros a ton in April to 4.81 euros today on the ICE Futures Europe exchange in London.
A one-euro rise in the cost of carbon can add 80 cents to the price of power, according to Roland Vetter, the London-based head of research at CF Partners U.K. LLP, a hedge fund.
Carbon probably has the greatest potential to change electricity prices this year, he said. “If carbon is 15 euros by the end of this year, which I wouldn’t rule out, it would add about 8 euros to the power price,” Vetter said.
Economic Growth
Power consumption in Germany last year was the lowest since 2009, according to AG Energiebilanzen e.V., an association of energy lobby groups and research institutes. Demand may contract by as much as 2.5 percent in the next two years, Bank of America Corp. said in a report Dec. 18. That may be tempered by accelerating growth.
Germany’s $3.4 trillion economy will expand 1.7 percent this year, from 0.5 percent in 2013, according to the median of 47 economist estimates compiled by Bloomberg.
RWE will report a 41 percent decline in its most-widely tracked measure of profit to 1.42 billion euros for 2014, the mean of 17 analyst estimates compiled by Bloomberg shows.
The Essen-based company said Nov. 14 that recurrent net income, the measure used to calculate its dividend, will drop to 1.3 billion euros to 1.5 billion euros, from about 2.4 billion euros. RWE also announced plans to cut about 10 percent of its workforce.
A one-euro decline in prices translates into a drop of about 200 million euros in annual revenue, said Martin Pack, an RWE spokesman. He declined to give a power-price forecast.
Falling Profit EON, based in Dusseldorf, will report a 17 percent contraction in its most-widely tracked profit measure to 1.91 billion euros, the mean of 15 analyst estimates compiled by Bloomberg shows.
Georg Oppermann, a spokesman for the utility, declined to give a forecast for power prices. Rising coal supply and lower costs increased margins for European utilities burning the fuel. The price of coal for delivery to northwest Europe in 2014 fell 19 percent to $82.40 a metric ton last year.
The year-ahead clean-dark spread, a measure of profitability that includes power, coal and carbon, rose 1.5 percent to 8.26 euros a megawatt-hour in the year to Dec. 30. Steag GmbH’s 725-megawatt Walsum-10 plant near the western city of Dortmund, which started Nov. 15, was Germany’s first new hard-coal power plant since 2005.
Trianel GmbH opened its 750-megawatt Luenen plant in North Rhine-Westphalia last month. Eight hard-coal power plants are scheduled to start in the next two years, including 1.5 gigawatts of capacity at Vattenfall AB’s Moorburg plant near Hamburg and RWE’s Hamm facility in the Dortmund area, according to the grid regulator.
“Prices will continue to fall as we still have an oversupply,” said Frank Woskowski, a power trader at AVU AG fuer Versorgungsunternehmen, a municipal utility based in Gevelsberg, Germany. “We are adding solar and wind power while more coal plants also go online.”
bloomberg.com
The benchmark year-ahead electricity contract will average about 6 percent less in 2014 than in 2013, according to the median of nine analyst and trader estimates compiled by Bloomberg News.
Expanding generating capacity will provide 17 percent more supply than peak demand, says Bryan Garnier & Co., an investment bank in Paris. Wholesale power prices in Europe’s biggest economy plunged 32 percent since 2010 amid record wind and solar output and the weakest demand in four years.
The cheapest coal since 2009 is spurring utilities to keep building plants burning the fuel. EON SE (EOAN) and RWE AG (RWE), the largest generators, will report lower profit this year, according to analyst estimates compiled by Bloomberg.
“It’s a pretty grim picture,” said Vincent Gilles at Credit Suisse Group AG in London, whose recommendations on RWE returned 16 percent in a year, compared with a loss for the average analyst tracked by Bloomberg.
“Power-price fundamentals are not pointing to improvements in the next 24 months.”Year-ahead electricity prices fell 19 percent to 36.80 euros ($50.30) a megawatt-hour in 2013.
The contract closed at 35.90 euros yesterday, its lowest settlement since March 2005, and at 36.15 euros today, according to broker data compiled by Bloomberg. The benchmark will average 36.60 euros in 2014, compared with 39.06 euros last year, the survey showed.
Energy Markets
Last year’s slump compared with a 2.2 percent decline in the Standard & Poor’s GSCI gauge of 24 commodities.
The MSCI All-Country World Index of equities advanced 20 percent and the Bloomberg Treasury Bond Index (BUSY) lost 3.4 percent.
Power prices may drop as low as 34 euros, the least in a decade, according to Konstantin Lenz, the Berlin-based managing director of Lenz Energy who has tracked energy markets for more than 10 years.
Generating capacity will expand by 9.4 gigawatts this year, equal to 5.3 percent of current supply, according to Energy Brainpool GmbH & Co. KG. Renewable capacity will rise by 5.1 gigawatts and coal plants will supply most of the rest in their biggest expansion since at least 2000, the Berlin-based consultant estimates.
A gigawatt of electricity, or 1,000 megawatts, is enough to power about 2 million European homes. The supply surplus will keep growing as renewable and coal-fired capacity is added over the next 18 months, Patrick Hummel, an analyst at UBS AG in Zurich, wrote in a report last month.
Plant Closures
EON, RWE and Stockholm-based Vattenfall AB, the three biggest utilities operating in Germany, plan to shutter more than 16 gigawatts of unprofitable generating capacity in central-west Europe in the four years through 2015, company filings show.
Power companies have permission to shut plants with a combined capacity of 826 megawatts in 2014, according to data from Bundesnetzagentur, the German grid regulator. If they decide to close or mothball more facilities than announced, power prices may rise, Gilles said.
“What happens to prices in future depends if the utilities are able to cut capacity much beyond what they have said they will do,” he said.
“The problem the utilities have got when it comes to closures is that they want to tell the financial community ‘yes, we will be very tough,’ and they want to tell the regulators, ‘we will be very responsible’.”
Carbon Prices
The anticipated drop in power prices also may be curbed by rising costs for carbon after European Union member states last month agreed to limit emissions permits. As many as 400 million contracts, or about a fifth of annual supply, could be withheld, with the final amount to be determined in a vote by the bloc’s Climate Change Committee on Jan. 8.
Utilities have to buy carbon allowances to cover emissions produced by power plants. The price of carbon permits almost doubled from 2.46 euros a ton in April to 4.81 euros today on the ICE Futures Europe exchange in London.
A one-euro rise in the cost of carbon can add 80 cents to the price of power, according to Roland Vetter, the London-based head of research at CF Partners U.K. LLP, a hedge fund.
Carbon probably has the greatest potential to change electricity prices this year, he said. “If carbon is 15 euros by the end of this year, which I wouldn’t rule out, it would add about 8 euros to the power price,” Vetter said.
Economic Growth
Power consumption in Germany last year was the lowest since 2009, according to AG Energiebilanzen e.V., an association of energy lobby groups and research institutes. Demand may contract by as much as 2.5 percent in the next two years, Bank of America Corp. said in a report Dec. 18. That may be tempered by accelerating growth.
Germany’s $3.4 trillion economy will expand 1.7 percent this year, from 0.5 percent in 2013, according to the median of 47 economist estimates compiled by Bloomberg.
RWE will report a 41 percent decline in its most-widely tracked measure of profit to 1.42 billion euros for 2014, the mean of 17 analyst estimates compiled by Bloomberg shows.
The Essen-based company said Nov. 14 that recurrent net income, the measure used to calculate its dividend, will drop to 1.3 billion euros to 1.5 billion euros, from about 2.4 billion euros. RWE also announced plans to cut about 10 percent of its workforce.
A one-euro decline in prices translates into a drop of about 200 million euros in annual revenue, said Martin Pack, an RWE spokesman. He declined to give a power-price forecast.
Falling Profit EON, based in Dusseldorf, will report a 17 percent contraction in its most-widely tracked profit measure to 1.91 billion euros, the mean of 15 analyst estimates compiled by Bloomberg shows.
Georg Oppermann, a spokesman for the utility, declined to give a forecast for power prices. Rising coal supply and lower costs increased margins for European utilities burning the fuel. The price of coal for delivery to northwest Europe in 2014 fell 19 percent to $82.40 a metric ton last year.
The year-ahead clean-dark spread, a measure of profitability that includes power, coal and carbon, rose 1.5 percent to 8.26 euros a megawatt-hour in the year to Dec. 30. Steag GmbH’s 725-megawatt Walsum-10 plant near the western city of Dortmund, which started Nov. 15, was Germany’s first new hard-coal power plant since 2005.
Trianel GmbH opened its 750-megawatt Luenen plant in North Rhine-Westphalia last month. Eight hard-coal power plants are scheduled to start in the next two years, including 1.5 gigawatts of capacity at Vattenfall AB’s Moorburg plant near Hamburg and RWE’s Hamm facility in the Dortmund area, according to the grid regulator.
“Prices will continue to fall as we still have an oversupply,” said Frank Woskowski, a power trader at AVU AG fuer Versorgungsunternehmen, a municipal utility based in Gevelsberg, Germany. “We are adding solar and wind power while more coal plants also go online.”
bloomberg.com
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