Minimal amounts of rainfall since the beginning of the year in France are starting to drive long-dated power contracts higher, traders said Tuesday. French baseload power for delivery in the fourth quarter was last heard at Eur72.30/MWh Thursday, the contract's highest level since Platts began assessing it at the beginning of April.
The contract fell to Eur71.75/MWh Tuesday in line with lower German power and gas prices, but traders said the lack of rainfall since the start of the year--which has resulted in lower hydroelectric generation--was the main factor behind the recent strength in Q4 and Cal-12 power contracts. "Hydro reserves are getting lower, and that seems to worry some people in the market," said a source at one French utility Tuesday.
French Q4 baseload power was trading at a Eur7.15/MWh premium to the corresponding German contract Thursday, up from Eur5.05/MWh at the beginning of the month, Platts data showed. The premium of the French Cal-12 base contract over Germany was Eur1.30/MWh Thursday, up from 0.65/MWh on April 1, the same data showed.
French curve power prices have also risen more strongly than corresponding UK and Dutch contracts over the past few weeks for the same reason, and thanks to lower UK gas prices, which have pressurized UK power prices to the downside, according to traders.
"We've been quite surprised by the movements in the French spreads...for our part we blame it mainly on hydro," said a London-based trader Tuesday. "French hydro generation has been very low this year...but if you look at the last winter, it was France's ability to run 12-13 GW of hydro power plants at any time that saved them from running too many oil-fired plants."
French hydro generation has averaged 5,620 MW so far this year, down 25% from the same period in 2010, data from RTE showed Tuesday.
France and the Iberian peninsula have undergone a dry end of the winter and early spring and there are now fears that there could be a drought this summer on a scale similar to 2003, when there were significant water shortages all over the country. Recent political announcements about the future of nuclear power in France, the potential closure of the Fessenheim nuclear plant in the east of the country and the EU's decision to stress test nuclear reactors--which may all impact nuclear load over the medium-term--were unlikely a factor in the strength of the French Q4 and Cal-12 contracts, said traders.
"I don't see it as being too much of a factor," the London-based trader said. "The [nuclear load] forecasts beyond the summer actually look quite good." "I don't think the nuclear debate has a role to play in this," a second source said. "This is way too early to impact French power prices."