Whirlwind European tour

For this week's pod, Montel journalists review the key energy market developments in the first six months of the year, and provide an outlook for the remainder of 2020 and beyond. 

What will happen to prices, will demand recover and are markets prepared for a second wave? 

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guests: 

• Olav Vilnes, Chief Editor Nordics, Montel, 
• Chris Eales, Editor France, Montel, 
• Andres Cala, Editor Iberia, Montel, 
• Christian Driessen, Editor Germany, Montel. 

Transcript

Anna Siwecka, freelance journalist/podcaster: 0:01

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Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:29

Hello listeners and welcome to the Montel Weekly Podcast. Bring Your Energy Matters, an informal setting. My name is Richard Sverrisson Today, the penultimate pod. Before we take a summer break, we'll be in a slightly different format. We'll take you on a journey around Europe speaking to our desk editors to discuss the key issues of the first six months of the year and the outlook for the remainder of 2020. Joining me here in Montel headquarters is Olav Vilnes. Chief Editor Nordics. A warm welcome to you all of, how are you doing? Very well, thank you. Richard. We are looking at the biggest issues in the Nordic markets in the first half of the year. Could you run us through some of the key issues?

Olav Vilnes, Chief Editor Nordics, Montel: 1:08

I think the main issue for most of the people in the market is the dramatic price movements that we've seen. Last year you had an average price in the Nordic market of close to 40 euros. So far this year it's dropped to 10 euros. That's a huge drop. And in June, with even some record low average prices for any month since this market began with three 15 euros for the system price. And if you go on an area level, it sell all the way down to 1.46 euros in southern parts of Norway where you have all the hydropower plants.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:38

These price levels haven't been un affected by the Coronavirus at all, have they? That's the pandemic is something quite separate.

Olav Vilnes, Chief Editor Nordics, Montel: 1:44

It is quite separate. I think the price fault would've come anyway because the coronavirus created a lot of uncertainty when it arrived. They had the first lockdowns in March. The effect on power consumption has been much lower in the Nordic market than it has been elsewhere in Europe. So I think the prices have mainly reacted to the weather in the winter, which was unusually warm. It was unusually windy and also very wet. And the wet weather, it came as snow high in the mountains and that snow reserves, they have built up during the winter and when it came into May, they were close to a record high and it has all melted into rest snow in June and continues to do so even this month.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:24

But the whole of the Nordic market isn't seeing low prices. Those ola, I mean there are some, there's some key price variations.

Olav Vilnes, Chief Editor Nordics, Montel: 2:30

Yeah. And you can say the hydropower plants, they are the biggest hydropower plants are located in Norway and also in northern parts of Sweden. And these regions have seen very low spot prices. But there have also been issues with the transmission links from these areas, from Norway to Sweden, from northern to southern Sweden. And these restrictions have increased the price differences between the bidding zones. For example, in in June, you had much higher prices in in Sweden, in southern Sweden, then in nor in Northern Sweden. One day you had a price of 80 euros in southern Sweden and Finland while it was close to one Euro in Norway. And these huge price variations have created another debate about the nuclear plants in Sweden where they are about to close another director at the end of this year, Vattenfall actually decided when they looked, when prices were very low in April, that they would keep the ring holes one nuclear power plant offline for the entire summer. But the recent developments in southern Sweden, they have actually been paid money by the TSO to keep this reactor in operation throughout the summer. So it just highlights and has also recreated a political debate in Sweden about what is wise to close down the nuclear plants. This time or whether you should keep them on for maybe one or two more years.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:46

Let's look forward a bit. Ola, what do you think will be the key drivers in the remainder of the year and maybe into early next?

Olav Vilnes, Chief Editor Nordics, Montel: 3:52

I think a key driver would be the recovery and if you will see prices coming back to the levels that they used to be. Normally, we have spoken to market this week who said that maybe you could see the system price level. Go about 20 euros in late October, earlier in those areas that don't, do not have much hydro power production and maybe even later in in Norway. But that's an interesting part. The coronavirus creates some uncertainty over that. Of course. If you have a lower industrial demand due to persistent weakness in the world economy, that's one major point of uncertainty going into the autumn.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:26

So in terms of the impact of the COVID-19 pandemic. That may not happen until later this year. If or next if at all you, is that what you're saying?

Olav Vilnes, Chief Editor Nordics, Montel: 4:37

I say that there is this uncertainty, but at the moment it does not have a huge impact. But if you have the industrial output falling if the demand for the products aluminum paper. Other kind of metals if the world demand is falling, then of course you could see closures also at on factories in the Nordic region, which again, will have a knock on effect on power demand and that will keep prices lower for a longer time. Second important factor is of course, the weather, which can, of course if it gets very wet in the autumn then you will also keep prices lower levels.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:06

So the oversupply. Could continue into, certainly to the end of the year and maybe beyond. Ola, thank you very much for joining us today.

Olav Vilnes, Chief Editor Nordics, Montel: 5:13

Thank you.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:17

Next, I'm joined by Chris Eales. He's our editor, France, and is fond of wearing double denim, though I, it may be shorts today. Chris.

Chris Eales, Editor France, Montel: 5:24

Whoa. Listen, I have something to say to you, Richard. What is the common thread between Bob Marley and John Lennon? John Lennon or Lennon? No. John Lennon. Not Lenin. Yeah. Please enlighten me. Chris, they both wore double denim.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:38

Let's get onto energy markets. We are talking about the key issues. In the first six months of the year now, what's been the most surprising impact of the pandemic and on, on your markets, which is France?

Chris Eales, Editor France, Montel: 5:49

I dunno if it's been the most surprising, but the most significant impact has been on. Nuclear output, and that has been massively hit as a result of the pandemic's impact on demand on power demand. So you had a 20% cut in power demand, which led EDF, the nuclear operator in France to then cut. Their forecast for nuclear output this year down to 300 terawatt hours, which compared to last year's nuclear output represents if that target is met, represents a fall of nearly 30% from last year. That is a massive impact on the power supply demand situation in France. So I dunno whether that you can describe that as surprising, but that is definitely the biggest impact which we'll have. Implications for years to come.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:41

What do you expect to be, obviously this will keep driving the market in France, certainly the electricity market in France and in its neighbors as well in the rest of the year. Are there any other issues that you think will be key?

Chris Eales, Editor France, Montel: 6:53

yeah other issues are certainly the future of Aaron. Aaron being not a Scottish jumper, but the regulation governing the sale of EDFS nuclear output to rivals is currently set at 42 Euro a megawatt hour and concerns a quarter of EDFS annual nuclear output. There's been a big fight over this, Aaron, because the pandemic, everything. All roads lead to the pandemic because the pandemic cut power prices across Europe and in France, meaning that it was cheaper to buy power on the wholesale market and not to get it on the regulated rate of 42. So there's been a big fight between EDF suppliers and EDF themselves who are also struggling because of the low power prices. It led to a court battle, which is ongoing. The force was declared by at least three companies, meaning that they no longer had to supply at the 42 rate because they, it meant that they were, had to sell off. Their power that they had bought were contracted to buy at less than half the price that they bought it for. Big, small suppliers, not small suppliers, but suppliers, alternative supplier rivals to EDF total. I'm talking about total direct energy. For example, pic, GL energy, these three all triggered force measure. But EDF, in response to the force measure decided to cancel. The Aaron contracts with these three companies, as well as appeal against court decisions to allow companies to trigger force majeure. So that situation is quite interesting 'cause going forward as the prices increase I mean if you look at the Q4 price in France's hovering around 60 euros, that's above 42 euros, so you would think there's going to be renewed demand for Aaron. But how do you, what does it mean when your contract for Aaron this year has been canceled? EDF went ahead and canceled. Contracts for three companies the companies I mentioned earlier. So what are they going to do about Aaron for the rest of the year? Are they going to try to get a new contract? This is very interesting because of the higher prices in Q4 with given we know that because of the issues around the virus. The Q4 is very high in France. It's a premium to, to all of its neighbors. And there's a big debate about whether that's an accurate price whether it's been overpriced. But the Aaron is very interesting to, to see what happens going forward with that in the second half.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:20

That's something that your team will be focusing very much on both the Aaron. And on the ongoing reductions in Nu Nuclear Availability and supply from from EDF. Chris, thank you very much for joining us today. I'll have some more comparisons for you next time. I thank you. And now we have a hotline to Andres Color Editor Iberia in Madrid. Hello Andres. How are you doing?

Andres Cala, Editor Iberia, Montel: 9:43

Doing well. Nice and warm and sunny and good old Southern Europe.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:48

Excellent. It's a little bit different in the Northern Europe at the moment. But anyway, we are here to talk about energy. Andres, can you talk us through the key issues of the first six months of the year? It's obviously been the pandemic, but what were the big takeaways from the first six months?

Andres Cala, Editor Iberia, Montel: 10:01

It actually has been quite unexpected. It's served as a catalyst. A catalyst for a number of things. That were already ongoing, that were in the plans that were being thought about in some cases. But the coronavirus just the pandemic just made everything urgent. What am I talking about? We're talking about at least a 12% if not as much as 16% GDP contraction. And that of course just rattles everything in society, including, of course, energy. Lots of unemployment and all that. So the surprising things that came about from the pandemic though and which will actually be good in the long run, not in the short term. The, it'll be harder to actually gauge these in the short term, but we're talking about the deployment of renewables, the exit or. Fed for that matter of the coal fired plant. The PPAs have consolidated. We have the gas industry. It allowed the gas industry to renegotiate a whole bunch of well bad contracts Spanish companies had, because at the end of the day, it became a buyer's market, not a seller's market in gas. And the rebound has been quite remarkable. At least in the power industry, we still expect long-term gas demand to be very low as industry picks up. And on the power side, it's it's been quite rapid. We've opened of course now the, our borders because tourism is so essential to the Spanish. Economy and all the, all of these things. And I only mention those in the energy sector, but they're just part of a broader trend of reshaping the Spanish economy in such a way that yeah, it was in the plants. It just became a good moment to implement all the different measures, both regulatory and. We should be heading and reaching our goals. And I don't mean just renewable goals or climate change goals, just our economic growth goals sooner than expected, even if the recovery per se takes two years. But instead of going or reaching where we were planning to get maybe in 2025. Get there in 20 23, 20 24, just because of the revolutionizing effect of this pandemic.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:13

Wow. Excellent. So is it's accelerated these changes as you put Andres. That's very interesting. Do you expect more acceleration in the rest of the year? What would be the key issues here

Andres Cala, Editor Iberia, Montel: 12:23

going into the future? I think Spain, Portugal, Southern Europe in general. As we also were the ones who took the biggest part of the brunt of this pandemic, we're obviously overly concerned and we're also overly careful. Most energy companies are not going back to work in their offices for at least until the end of the year. It's just way too risky, not. Simply because some mistakes were corrected early on and or a concern over a repeat of some of those mistakes. It's mostly just because we now realize that a lot of what the original reactions from the scientific community, so certain extent, we can't fully trust. We, this is this is evolving way too quickly, to answer your question, Richard. The thing is, we don't know when the second wave it's gonna come. We know it's gonna come, but we're ready for it. The country and certainly the energy industry is is ready for it. It's handling, it is taking precaution measures even when it gets here. It'll be handled as it has been in the last two months. So yeah, it shouldn't. Profound reshaping as it did in March and April especially, and some, someone in May. So we don't know what's gonna come, when it's gonna come, how deep it will come, but that will not change the path of where we're going. It might delay it a bit, but that's as that as it could get.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:42

Absolutely. So the new normal will not be that normal. Andreas Kala, thank you very much for joining us today. Alright, take care. Have a good week. Thank you. You too. All the best. Bye bye. Last but certainly not least, we are joined by Christian Dreesen from our Frankfort office. Christian is our editor, Germany. Welcome to you Christian. How are you doing? Hello, Richard. Everything's fine. Thank you. Excellent. We're talking about the key issues of the first six months, obviously dominated by the Coronavirus pandemic. Talk us through the biggest issues in, in, in Germany. I know it's been a very busy end of June, beginning of July for you on the policy front, but what else are the key issues here?

Christian Driessen, Editor Germany, Montel: 14:23

Exactly. The policy front has been a huge issue over the past half year because Germany failed to seal the deal on a lot of important legislative projects. The first and biggest one being the coal exit law, which they just so to speak, dragged across the finish line early in July, giving the market a lot of clarity that has been needed in terms of what capacity is going to exit the market and under which conditions. That has been a major stumbling block for policy because nobody had clarity about the second half of the year. Another big project has been the lack of acceptance for the wind expansion in Germany, which has basically ground to a halt over the past couple of months. And German legislators finally agreed on optional minimum distancing rules in each state that allow the heads of states to. Implement rules to increase the acceptance of the German wind expansion. And last but not least, there was a cap for the German solar expansion at 52 gigawatts that would effectively killed any further solar expansion once this cap was reached. Now legislators. Have basically agreed on all those issues last year, but some smaller stumbling blocks caused huge delays in the process, and once the pandemic struck, it got delayed even further. So we've been basically hanging in a bubble. For over half year now, and they finally managed to clear all those problems up.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:55

So the biggest impact of the coronavirus has been in a way or one of the big impacts has been in delaying this legislation, freeing up more renewables expansion is, would that be a correct assumption Christian?

Christian Driessen, Editor Germany, Montel: 16:06

Exactly, yes. That's that's correct. And as I said, they could have done all of this last year with way less problems and way less trouble along the way. But they've been stalling and, that came around to haunt them during the pandemic. Absolutely.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:18

How about energy prices? Did they take a big hit during the pandemic and are they on the way back up again? Or?

Christian Driessen, Editor Germany, Montel: 16:23

Interestingly enough, prices took a big hit on a European level. The carbon market remained relatively resilient, which led to gas prices or gas fired power generation. Take the lead in the German energy mix as soon as renewables fall short of their usual production levels. In a way, record low gas prices in Europe. With a resilient carbon market led to a defacto phase out of coal fire power generation, which basically means that the coal exit would've taken place one way or the other with or without coal exit law. But prices have been rebounding over the past couple of weeks in June and are now back at pre-crisis levels. Actually that is in a way interesting because consumption still falls short of the original levels that we've seen pre-crisis energy quant, pipe packed consumption over the last two weeks of June at roughly 92 to 93% of what's the usual level. And while they expect a slow recovery to take place by the end of the year, we are probably still short some 3%. Of the regular levels. So it seems rather odd that we already reached levels that we've seen before the pandemic struck.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 17:42

Absolutely. And you clarified the policy issues that are now been basically signed off. What else are the key issues in the remainder of the year then once, once we've tucked away all the renewables delays and the postponements there, that on the policy side,

Christian Driessen, Editor Germany, Montel: 17:54

the whole policy side. Has not been completely cleared because we are still waiting for the EU Commission to rubber stamp to coal exit law. Now, Berlin is very convinced that they will receive a green light for the coal exit deal, but there still is some doubt with regard to the state aid rules that the EU Commission might find it rather odd that we are throwing billions of euros at dying coal. Power plants while they would phase out of the market eventually all by themselves. So this is still a big unclarity. It's expected that we receive a green light for the coal exit law later in autumn, but it's not a 100% certain thing for now. Nevertheless, they will go ahead with the first tenders to remove coal capacity, coal, hot coal capacity from the market. And they aim to reduce the capacity. By four gigawatts by year end, so we will have to see how many operators really push for this first tender. And try to remove some of the older units.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:54

Thank you very much, Christian from Frankfurt. Be interesting to see if the market dynamics supersede the policy makers. But thank you for joining us today, Christian. Thank you very much. That's about all from the Monte Weekly podcast this week. My thanks to all of Chris and Andreas and Christian. I hope you listeners enjoyed the whirlwind tour around Europe. Remember to keep up to date with all our stories on Monte News. Follow us on Twitter, LinkedIn, subscribe on Apple Podcasts, Spotify, or wherever you get your podcast from. Thank you and goodbye.