Spot prices for German power during February came out significantly lower than the latest closing price for the February FWD contract. The fuel prices came out as an average close to expected levels, the main reason for lower spot prices was very high levels of wind power.
EQ has studied the power balance, wind power generation, and the spot price development for February to find how these market factors have come together to create the scenario we now see.
German Power balance February 2022
The power balance for February is characterised by large amounts of wind power. The table below shows that the power produced by wind generation during February was 50% higher than what we would normally expect to see.
Compared to January, net export subsequently came out around 3000 MW higher, whilst wind power itself produced 9000 MW more than normal. With power readily available from this source, the amount of power generated from accumulated natural gas and coal (including lignite) fell around 5000 MW from January to February.
Wind power production in the country hit all-time production highs on several days in February, contributing to a record-high monthly average of 30,254 MW. This is shown in the chart below. February 2020 at 29,100 was the previous monthly record.
We have also compared the 2022 record of 30,254 MW to our climatic scenario calculations for the years 1980-2020, which represents the actual wind power for all February months throughout this period by the 2022 production capacity. This is visible in the chart below, where you can see the difference between the 2022 actual (red line) and just how big of a jump this is from the normal based on our scenarios.
Spot price February
To see how this affected German spot prices last month, we have compared how the February power was traded, as well as the differences in Short Run Marginal Costs (SRMCs) at the end of January in the table below.
It is very interesting to see that the average SRMCs for both gas and coal fired plants remained similar to the levels we observed at the end of January, so it’s fair to say that there was no significant change in the fuels as an average for the month.
However, the actual spot price came out 128.8 €/MWh - about 50 €/MWh lower than it was being traded at by the end of January (180.0 €/MWh).
It is fair then to conclude that the change in levels of wind power generation was by far the most important factor in reducing the German spot price from its traded expectation of 180 €/MWh (last closing price for February).
We also see that the market coupling towards France is weaker when wind power generation is so strong, so that also plays a role in reducing the spot price.
To further our analysis, we have also compared daily spot prices and residual load (residual load = consumption – wind – solar) to underline the relations between prices and the fundamentals for the period Feb 1st - > Feb 25th in the chart below.
We see a very linear relationship between spot prices and residual load (daily base), with strong wind power contributing to this even more than we had expected. Looking at the normal residual curve, we can imagine that the last traded February price of 180 €/MWh would have been a good estimate had wind power remained around normal levels for February (with normal residual load).
This blogpost has enabled EQ to summarise the German power balance for February, proving that the levels of power generated by wind have reached a new all-time high, contributing to a 50 €/MWh reduction in the German spot price.