Spanish near-term forwards are overvalued between EUR 2-4 due to a recent spike in commodity prices but they should correct downwards approaching delivery, market participants told Montel this week.
Forecaster Aleasoft pegged wholesale prices in June averaging around EUR 54/MWh and at EUR 56/MWh in the year’s third and fourth quarters, which was in line with other estimates but below the current trading price in the equivalent forward contracts.
The June contract was last seen at EUR 58.38/MWh, while Q3 was at EUR 58.90/MWh and Q4 EUR 59/MWh.
Forwards were overvalued because “spot prices and commodities have been rising, although they will drop at some point”, said Antonio Delgado, director of the Barcelona-based forecaster.
Buyers would secure supply, even if overpriced, just in case prices did not drop but contracts regularly fell before delivery, he added.
“Forward prices are really overvalued, especially for this year, by about EUR 3 and even EUR 4,” agreed Cesar Rodriguez, market operations director at industrial power supply retailer Fortia Energia.
“And it won’t drop until delivery, unless gas prices drop enough,” he added.
Rafael Alcala, senior energy consultant and partner of consultancy Trebol Energia, also agreed.
“Commodities are hurting [us] a lot, especially gas and CO2,” he said.
“This all adds up. Many in the market are very exposed. We know of retailers that are doubling down, despite high prices, and if prices drop, they will go under,” Alcala said.
Led by soaring oil prices, fuels had surged year on year, with coal prices more than USD 30/t higher and gas on the Dutch TTF hub up around EUR 3/MWh on 2017 levels but carbon was one of the main drivers, with prices near four-year highs, said market participants.
The Dec 18 EUA contract was last seen down EUR 0.06 at EUR 13.56/t.
However, spot prices in Iberia tend to fluctuate between EUR 40-60/MWh, Delgado pointed out.
“Strategically, hydropower is the main price driver, but at a tactical level wind power brings volatility, and along with fuel price fluctuations, seasonal hydro trends, and geopolitics, we get the price range,” said Delgado.
That range though should narrow in coming years due to “interconnection [with the rest of Europe], more stability and competition between suppliers,” he added.
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