German power sinks below EUR 30 as EON and RWE falls to records
Bloomberg reported that German power prices sank below EUR 30 a MWh for the first time in more than a decade, signaling more pain for utilities from EON SE to RWE AG, already trading at record lows.
Electricity for year-ahead delivery, a benchmark European contract, fell 2.1% to its lowest level since October 2003. EON, Germany’s biggest utility, declined 8.6%, the most since November 2012, while RWE dropped 9.1%, the biggest slump since August 2011.
According to Mr Bruno Brunetti, senior director of electricity, at Pira Energy Group in New York, next-year power in Europe’s biggest market is headed for a fifth annual drop as Chancellor Ms Angela Merkel’s unprecedented shift toward an economy based on renewable energy boosts output of solar and wind electricity to record and squeezes generation from traditional coal and gas plants. Until now, the 30-euro level was a psychological barrier for the year-ahead price.
Mr Omar Ramdani, head of analysis at RheinEnergie Trading GmbH in Cologne, said that “We are approaching an unhealthy level. It wouldn’t surprise me if we would trade below in the short term, but we should actually hold the 30, which is near the floor price.”
The contract exceeded EUR 90 in July 2008, just before the financial crisis took hold of the markets. It dropped as low as EUR 29.73 a MWh on Monday on the European Energy Exchange.
Mr Ricardo Klimaschka, a trader at Energieunion GmbH, said that “Who says there is an end at EUR 30? Renewable generation will rise in Germany and modern hard coal plants can produce already at EUR 25. These round figures are purely psychological.”
RWE and EON are the worst performers this year on Germany’s DAX Index of leading shares. EON on Monday fell below EUR 10 for the first time since it was formed 15 years ago and closed at EUR 9.57 in Frankfurt, while RWE closed at EUR 13.22. EON dropped 33% this year and RWE sank 48%. RWE spokeswoman Vera Buecker, analysts and fund managers from Union Investment to Independent Research have attributed the decline to sliding wholesale power prices.
Mr Georg Oppermann, an EON spokesman, pointed to the falling stock market and commodities environment, without being more specific, when commenting on the slump in shares.
Brunetti said that “Major German power generators have already hedged large amounts of power forward, so I think the pain will be felt in the longer term, rather than immediately.”
Renewable energy’s share of gross German power consumption increased by 2.4 percentage points last year to 27.8%, according to the Economy and Energy Ministry. Coal, lignite and nuclear accounted for 59% of German generation in 2014, according to AG Energiebilanzen e.V., an association of energy lobbies and economic-research institutes.
Brunetti said that some coal and nuclear plants will struggle to cover their fixed costs with power prices below EUR 30.
Coal for next-year delivery fell to its lowest level since at least 2007, according to broker data compiled by Bloomberg. The fuel accounts for about 18% of Germany’s electricity and price swings impact power prices. Brent crude plunged 57% in the past year in London trading.
Source : Bloomberg