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ElectricityPricing
Table1: ComparisonofAverageActualSpot&ForwardMargins
SpotPrices ForwardPrices Spread–Forward
Average St.Dev. Average St.Dev. Average St.Dev.
SparkSpread 10.13 6.92 4.07 7.55 6.05 9.97
CleanSparkSpread 4.22 7.47 -3.61 8.37 7.83 11.10
sentiment will evolve and to take
DarkSpread 23.62 11.56 29.77 6.97 -6.14 14.13
account of it when taking his
CleanDarkSpread 10.75 9.68 13.90 7.96 -3.15 10.75
positions.
In principle, therefore, there are
Source: Gaselys
no grounds for believing that expectations with
regard to spreads on thermal power plants will
Figure1:AverageActualSpot&ForwardMargins
match the future spot configuration. And even
thoughanypastpoorperformanceisnoguarantee
of future poor performance, any ‘errors’ in the
forwardmarketmeritsomeattention:Evidenceof
systematic behaviour patterns could possibly be
usedinmarketoperations.
ComparisonofSpot&ForwardSpreads
Theanalysisconductedherewillbelimitedtothe
most liquid electricity market in continental
Europe, thatof Germany. The gaspriceswill be
takenfromtheTTFinordertohavearelatively
consistent historical series. The coal benchmark
willbeAPI2.Foreachquarter,theaverageofthe
actualspotbaseloadmargins(spark,cleanspark,
Source: Gaselys
dark and clean dark) will be compared to the
forwardquotationsofthesamemarginsoverthe12months positivemargin,whetherspotorforward,andultimatelyonly
priortothematuritydate.Inordertoincludeagenuinely the profitability of a gas-fired plant operating in baseload
significantCO
2
price,thestudywillfocusondeliveryperiods modecanbegenuinelycalledintoquestionintheforward
from2006:thedevelopmentoftheforwardCO
2
marketand market.Asafunctionoftheeconomicsofeachgenerating
the arbitrage possibilities which it represents for power resource,itwillprobablybepossibletoguaranteethebaseload
generatorsbeganinearnestin2005. operationofassetsthatarealreadyamortised,andevento
Of course, with regard to all the results presented ensure the profitability of investments in new generating
hereinafter,thereisscopeforextensivedebateontheinitial resourcesinspecificcases.
assumptions,andthestatisticalrelevanceoftheobservations Itistruethatthisfirstobservationcanbequalifiedinterms
isreducedbythelimitedamountofdata.Amoreexhaustive ofthewidedispersionofvaluesthatisquantifiedbyalarge
analysiscouldindeedbeconsidered,butitwouldexceedthe standarddeviationandlinkedinparttothesometimesvery
scope of this simple article. Furthermore, it must be differentstructuralandcyclicalstatesoftheelectricitysystem
appreciatedthattheresultsareliabletobedistortednotably dependingontheseason.Putsimplistically,electricitydemand
bytrendsintherelativecompetitivenessofforwardcoaland undernormalconditionsisgreaterinthewinterthaninthe
gas:theuncorrelatedtrendsincoal,gasandCO
2
inprinciple summerinGermanyandneighbouringcountries,leadingto
prevent any simultaneous observation of invariances in pricesandmarginsthataretheoreticallyhigherinthefirst
spark,darkandcleansparkspreads. (Q1) and last (Q4) quarters of the year. However, climate
conditions or unforeseen technical problems in generating
AverageMargins&OptimumUseof resourcesmaysubstantiallyaltertheconfigurationofthespot
GeneratingResources electricitysystem,notwithstandingthestructuralsituation.A
Thefirstobservationtobemadewithregardtotheaverage mildwinter,forexample,maycausespotmarginstofalltoa
marginsrecordedduringtheperiodfrom2006to2008(Table level below those of a heatwave summer, even if summer
1&Figure1)isthatinboththespotandforwardmarketsthe demandremainsbelowwinterdemand.Thatwasexactlythe
average margins on thermal generating plants are positive situationencounteredin2006and2007when,duetothemild
whenCO
2
isnottakenintoaccount.WhenCO
2
isfullypriced winter,marginsinQ107turnedoutlowerthanthoseinthe
in,thebaseloadoperationofacoal-firedplantstillgeneratesa summer(Q3)of2006,whichwasaffectedbyaheatwave.
worldPower2009 55
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