Day-ahead power price spreads soar as markets decouple on technical issue

Additional reporting by Andrea Battaglia

LONDON (ICIS)–A technical issue affecting the trading system underpinning the EPEX SPOT platform led to a partial decoupling of some European countries from the single Day-ahead market coupling (SDAC) session on Tuesday 25 June. The fault led to extremely wide spreads across central European power markets on EPEX SPOT, culminating in a €489.08/MWh premium on German prices over France.

The partial decoupling meant that separate Day-ahead auctions had to be held on EPEX SPOT for France, Germany/Luxembourg, Austria, Belgium, the Netherlands and Poland, with the publication of results delayed from the usual 12:00 CET to 15:06 CET.

“EPEX SPOT is working on an in-depth analysis of the market events, including order book analysis,” a spokesperson for the platform told ICIS, blaming a “technical issue”.

Traders continued to transact European Day-ahead products over-the-counter (OTC) into the early afternoon – more than three hours later than the typical time.

GERMAN PREMIUM

The SDAC system allocates cross-border capacity in the most efficient way by coupling different markets via an algorithm that also takes into account transmission constraints.

But with separate auctions held, the Germany EPEX SPOT Day-ahead auction cleared at €492.04/MWh, with France at €2.96/MWh.

“[Germany is] not reflecting reality,” said a trader.

This was also evident from looking at auction prices on other platforms that did not decouple. On Nordpool, the German Day-ahead was €103.01/MWh, just €2.97/MWh below the French Day-ahead.

On the OTC market, the German Day-ahead changed hands below the €100/MWh mark until about 13:00 CET, to then become very volatile and change hands in a wide €102.50-375.00/MWh range in thin trading afterwards.

The results of the separate auctions on EPEX SPOT offered a glimpse into how much European countries rely on each other for meeting domestic demand, and the extent to which domestic policies have been set with that in mind.

“What this really exposes is how Germany has essentially outsourced its nuclear generation to France, and how reliant it has become on its neighbours to cover power demand,” said ICIS power analyst Ellie Chambers.

“With the decommissioning of its own nuclear units and several coal units, when Germany is forced to ramp up thermal plants the impact of these phase-outs is clear in the price.”

By the end of this year, Germany will have phased out around 10GW of combined lignite and coal units.

“With France’s grid operator RTE warning of more grid constraints August-October, it’s likely we’ll continue to see wide price disparities between France and Germany during those months – although, barring any events like today’s partial decoupling, hopefully not to the same extreme,” Chambers concluded.

According to the European Network of Transmission System Operators, in the last 10 years, five incidents have happened that led to a partial decoupling of the SDAC market.