Energy market update 24-30 January
Kyiv, Ukraine, Mon, Feb 03, 2020
In January 2020, there has been a 9% decrease in electricity consumption in Ukraine compared to January of last year. Abnormally warm weather (+3.5⁰C vs the average over the last 5 years) is one of the major reasons. Low demand, increased RES generation and electricity imports caused excess supply in the Day-ahead market (DAM) in the United Energy System of Ukraine (UES) and as a result the price declined during last week. The last trading session closed with prices of 116 kop/kWh, which is 17% below the average of the previous week. In the Burshtyn island the price slightly went down on January 25th and 26th (142 kop/kWh), but quickly returned to the level of 160 kop/kWh. For 30 days of January, the Baseload price averaged 151 kop/kWh, which is 5% higher than in December.
European Energy Markets
In January, the factors that traditionally determine price spikes in the electricity markets of Southeast Europe were less pronounced. Despite some volatility in regional temperatures, weather has largely been better than the seasonal norm, influencing electricity demand for heating purposes. Repairs of some TPPs as well as unstable supply of electricity produced from RES influenced the price to a lesser extent than weak demand.
The possibility of Italian electricity flows to the Balkans (because of a new transmission line between Italy and Montenegro) helped to smooth price spikes during the peak loads. In addition, the cost of gas generation drove a significant reduction of the price for natural gas (in particular, after the issue of Russian gas transit through Ukraine was resolved). As a result, the average spot price on Hungary's market in January was EUR 53/MWh. For comparison, in the corresponding month last year the price was 73 EUR/MWh.
The market is gradually reducing the risk premium, which is included to the forward curve of electricity prices. An important factor for adjusting forwards is the expected further reduction of gas prices. The February forward since the beginning of the year has lost 1.8 EUR and is trading at 51.7 EUR/MWh. The cost of forwards for the supply of electricity in the 2nd, 3rd and 4th quarters decreased to 44.3 EUR/MWh, 54.0 EUR/MWh, and 55.5 EUR/MWh respectively, which is 1.4-3.3 EUR less than the cost of such products at the end of 2019.