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What's the price effect of Cobra?

Hugo Birkelund
Archived blog post. This blog post has been transferred from our previous blogging platform. Links and images may not work as intended.

The 700 MW Cobra cable, connecting the Netherlands and DK1 (Jylland) is scheduled to start commercial operation on Monday. In this short blog, we investigate the effects it will have on the price formation.

Conclusion: We expect that the effect of the cable will leak into many markets.

A versatile spot model

EQ can provide this information because we have prepared for the system change, meaning already have included the Cobra cable in our price model. Take a look, and you will, e.g. see that Cobra takes effect as of Monday, at 00:00, for NL and DK1.

The graph depicts the effect on the base price as of Monday. Note that a ranking of the price effect on for countries is shown beneath.

How is effect of Cobra measured?

We have simulated the price formation, with and without the 700 MV Cobra cable. Comparing the two resulting price paths yield the cet. par. effect from introducing Cobra. The simulations were made Thursday 6 Sep, after the spot for Friday had arrived.

Note that merely comparing the price levels before and after the introduction of the Cobra cable, is not a sound approach. Prices are too volatile and the effects far too complex to provide meaningful results.

What did we find?

  • Price effects are relatively small for the two price areas directly affected. WHY: The fundamental effect via the 700 cable leaks into adjoining markets and beyond.
  • The number of price areas expected to be affected is relatively high. In our simulation it ranges from 25 to 15 affected countries, see the graphs below.
  • The price effect varies very much, both in size and direction, meaning up or down.
  • The indirect effect, in price areas adjoining to DK1 and NL, can be higher than what is observed for DK1 and NL, that are directly affected by Cobra.
  • Introduction of the Cobra cet. par shifts the direction of the power flow. This is easily seen as both NL and DK1 see positive and negative price effect within the 15-day forecasts period.

Why?

To make a long story short: It all boils down to available capacity and relative price elasticities. These are in turn decided by the fundamental context. But in the end, as always with the power market, it's all down to the weather.

The graphs show the ranking of the effects for countries. Negative numbers indicate a price decrease and positive numbers means a price increase.

     

     

Notice how the number of countries affected changes, how the magnitude varies and also the ranking alternate.

Further work

We aim to return with a more thorough analysis on this topic. We are very keen to find out how the power flows shift and where new bottlenecks form as the one between DK1 and NL is alleviated by Cobra. How the price profiles are affected also interests us. Why did we make the analysis? Because is prepares you for the nomination on Monday.

Feel free to drop me an email at hugo@energyquantified.com if you have any questions.

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