Another Power Squeeze?

In the third episode of our energy crisis miniseries, we turn to Europe’s power markets, where rising gas prices, renewed volatility and political uncertainty are once again putting the electricity system under pressure.

Although the current crisis is not a repeat of 2022, it is exposing fresh vulnerabilities; from low hydro levels in the Nordics and gas storage concerns in western Europe, to growing questions over market design, interconnectors and the pace of the energy transition.

So how resilient is Europe’s power system this time around? And what happens when geopolitical shocks collide with an increasingly complex power market?

Richard is  joined by Montel analysts Jean-Paul Harreman, Fintan Devenney and Priyanka Shinde to unpack the impact across Europe;  from battery revenues and price spikes to liquidity risks, policy shifts and the regions most exposed in the months ahead.

Host: Richard Sverrisson – Editor-in-Chief, Montel News

Guests:

Jean-Paul Harreman – Director, Analytics, Montel

Fintan Devenney – Market Expert, Consultancy, Montel

Priyanka Shinde – Market Expert, Nordic, Montel

Julia Demirdag – Germany Correspondent, Montel News

Transcript

Richard Sverrisson – Editor-in-Chief, Montel News: 0:06

Hello listeners and welcome to Plugged In - the Energy News podcast from Montel, where we bring the latest news issues and changes happening in the energy sector. This is episode three in our energy crisis miniseries, looking at the global fallouts from the war in Iran. The conflict has dominated headlines through the lens of oil and gas. But beneath that, something equally critical is unfolding. Europe's power markets are once again under pressure. Prices are rising, volatility is back, and the system is being tested not just by geopolitics, but by the structure of the energy transition itself. Storage levels matter, policy decisions matter, and above all price matters. So how exposed is Europa this time? And what does this latest shock tell us about the resilience of the system we are building? I'm very pleased to be joined for the scene setter by Julia Demirdag, who's Germany correspondent based in Frankfurt. A warm welcome to you, Julia.

Julia Demirdag – Germany Correspondent, Montel News: 1:07

Hello, Richard.

Richard Sverrisson – Editor-in-Chief, Montel News: 1:08

Obviously, the main focus of the war in Iran has been on the implications for oil and gas markets and the outlook for the global economy, but it has also affected power markets. Could you talk us through a little bit how power markets in Europe and Germany in particular have been infected by the war?

Julia Demirdag – Germany Correspondent, Montel News: 1:24

Yes. I think when we talk about the power markets right now, it's actually worth taking a brief look back into 2022, the last energy crisis when Europe actually suffered an actual supply shock. When the Russian, the cheap Russian pipeline gas stopped flowing basically. And you are brushed to to expand its LNG import infrastructure. We could get our gas from other places than Russia. And at the same time especially Germany is exiting the coal fired power generation and nuclear. So the last new nuclear plants in Germany were switched off in 2023 end of April. So that means we are left with gas for a lot of hours in the power market. Yeah, since gas fire production is expensive and it is setting prices at a fair amount of time. If there's not enough wind and power and solar power in the market, that means we rely on gas and prices are high now. So that's the big issue we have right now.

Richard Sverrisson – Editor-in-Chief, Montel News: 2:34

Absolutely. I know the other issue, I suppose as well, Julia is you know, refilling gas storage ahead of the winter. Is that also a bit of a concern in Germany?

Julia Demirdag – Germany Correspondent, Montel News: 2:41

Yes, definitely. Germany has expanded its renewable capacities as well and we are importing LNG. And I think it's also, we have to say that there's not a shortage of molecules and gas as such right now, but just the markets are super nervous. So there is gas to put in the storages, but the question is at what price and how much focus does the government in Germany put on filling those storage? The caverns right now? Because they're still playing an important role, but not as important as, say in 2022. So the government is looking at that, but I feel they haven't really decided. Will there be political action to fill them on time. Or will they wait and rely on the market. I think that's one of the big questions as well.

Richard Sverrisson – Editor-in-Chief, Montel News: 3:36

Yeah, absolutely. That's that's absolutely crucial. Julia, but would you say, would it be a fair assumption that to say that Germany is better off now than it was four years ago?

Julia Demirdag – Germany Correspondent, Montel News: 3:44

Yes, definitely.

Richard Sverrisson – Editor-in-Chief, Montel News: 3:46

So in what way?

Julia Demirdag – Germany Correspondent, Montel News: 3:47

In what way? Because there is still gas, we are not suffering this actual supply shock, but we are still getting gas in and we do have more renewable power in the system. And in comparison to the crisis in 2020. Two, which started before the winter. Now we are actually through the winter, so now we are at the end of March. So power and gas demand is lower in the season. And we are also at the beginning of the solar power season. So April and May are usually the months when we see lots of solar power in the system. So that's going to ease prices overall. Plus we also have to say energy demand because of the economy is just down a lot compared to 2022.

Richard Sverrisson – Editor-in-Chief, Montel News: 4:38

Julia, thank you very much indeed.

Julia Demirdag – Germany Correspondent, Montel News: 4:40

You're very welcome.

Richard Sverrisson – Editor-in-Chief, Montel News: 4:41

So that's the backdrop. A market that's more resilient and in 2022, but still deeply dependent on gas, still vulnerable to global shocks, and still navigating a complex transition. This isn't just a story about risk, because within this volatility there are also opportunities and some parts of the market are already capitalising on them. From widening price spreads to batteries, making record revenues to growing divides between regions, the question now is not just how bad could this get, but who wins, who loses, and what breaks next? To break this down, I'm joined by three of the sharpest minds in European power markets. Jean-Paul Harreman, Fintan Devenney and Priyanka Shinde are analysts from Montel who spend their days inside these markets tracking the moves of risks and where things could break next. So a warm welcome to you all. Jean-Paul , if I can start with you if we compare the 2022 crisis to now, what is different?

Jean-Paul Harreman – Director, Analytics, Montel: 5:50

I mean there's a lot of similarity to where we see the gas crisis going up and seeing significance volatility. But I think. What is different is it's not just a price crisis. It's actually also, are we actually going to get gas into Europe because this strait of Hormuz is closed. It's not just like scarcity pricing. It's actually, okay, well where is this, where's the gas going to go and where is it going to come from? Because you basically have this choke point, so this is massively different than than in 2022 when there was sufficient amounts of gas, but it was just massively expensive. And then of course the source of volatility is a bit different. So the source of volatility in 2022 was yeah, how the war evolved. And basically now every time we see a press conference in the US we get a new price shock, either upward or downward. So it's a bit more random. Yeah. If you'd know when the press conferences are going to go, you might actually start a trading strategy based on the, based on what you expect that's going to be said, even though that remains quite unpredictable.

Richard Sverrisson – Editor-in-Chief, Montel News: 7:08

And even, of course, in closely monitoring social media posts on Donald j Trump's very own true truth social. That's very true. Jean-Paul , but Priyanka, how have the Nordics been affected?

Priyanka Shinde – Market Expert, Nordic, Montel: 7:19

Yeah, so in terms of Nordics, I would say the northern bidding zones are not as severely affected, but. It's quite alarming to see the sudden bidding zones. So when we say bidding zones, it's the regions, let's say. That are more connected to the continental Europe. So they kind of are more coupled today, so of the way we operate the markets and so on. So that's relieving like more capacities. And it's actually, Norway, for example, is importing at times. So it's basically connected to the continental Europe, which is picking up on these price spikes from coming from the gas which is in the merit order, right? So this is definitely, which we see, feeding into the power prices, both in Denmark, south of Sweden and up to south of Norway. But Finland, for example, is quite disconnected and the northern bidding zones are also not as affected.

Richard Sverrisson – Editor-in-Chief, Montel News: 8:08

And obviously prices rows in the first weeks of the war and the conflict in the gulf, but have come off a bit now, haven't they? Priyanka? Warmer weather. The springs coming, but hydro hydropower levels are still very low. Right.

Priyanka Shinde – Market Expert, Nordic, Montel: 8:22

That's very good that you mentioned about it because if we track the hydro balance in Nordics in the past one month, so we started somewhere around minus 26 TW hour, which is quite a low I would say, so we were in deficit. Today when we check at the situation it's lifted up, so we are still in deficit, but the situation looks better and it's somewhere around minus 16Twh, so that's also including the forecast of the next 14 days. So there are different things here, as you rightly mentioned, the weather patterns, and also as I mentioned about the neighbouring imports. So that is also improving the hydro balance in Nordics because then you're not using so much of your hydro reservoirs, so you can save that. So first of all, the second is also internally, how is the situation looking for wind and solar and so on. Right. So if you have like cheaper resources, then you would dispatch those first so the hydro can as well, save up a bit on that. So it's a different factor that are playing in here but we are seeing the situation to look a little bit better than it was a month ago. But yes, it's still in the deficit, I would say. But it comes to hydro balance, yes.

Richard Sverrisson – Editor-in-Chief, Montel News: 9:26

And Fintan in the UK. There's been a clear debate about gas storage and also a debate that we are much better off in 2026 than 2022.'cause there've been a huge rollout renewables. But there are still some issues. There's even debates of, exploring and opening up production in the North Sea for both oil and gas. What, what's going on in the in, in GB Fintan?

Fintan Devenney – Market Expert, Consultancy, Montel: 9:46

We're in this very strange sort of transition period in GB where the Labour government and Ed Miliband, who's in charge of energy policy in the government. It feels as if they've they've bet the house on this dream of net zero. They've banned some like new licences for drilling it for gas in the North Sea. And they're saying that the energy independence will be secured by delivering on the dream of net zero which is a big bet. I think this new price shock that's come from the Iran war could, those situation feels like it can go one of two ways. It can make this whole situation worse, make zero more difficult to achieve, make pricing worse, make the price, co price cap might go up which was reduce the amount of buy-in that consumers have in the government which would then reduce the amount of buy-in from consumers for net zero. Or it could be used as a kind of as a kind of impetus to say this is how we delivered net zero is by convincing the people that this is how we get our energy independence because this newest price chock and the newest wave of consumer price bill price hikes that is coming from two different countries, Iran and the United States of America interacting in some way that British had no impact over, and now your prices are going up. We know that the British people, certainly in 2016, they proved they're quite interested in the idea of independence. So it's possible that this could be used by the government from a kind of PR point of view to sell the dream of net zero even harder. But it, it could go either way, I think at this point.

Richard Sverrisson – Editor-in-Chief, Montel News: 11:17

What's the view from the Netherlands Jean-Paul ? You know, I mean, and also really how serious could things get, things get got quite incredibly serious in terms of prices in 2022. Are we looking at those kind of levels? Like I mentioned before, we're in spring, we're just ahead of summer, the big solar season, but there's lots of challenges that come with that, right?

Jean-Paul Harreman – Director, Analytics, Montel: 11:37

Yeah. We're not seeing. As extreme prices as in 2022 is always a mystery on how long this adventure is going to take. Of course, if it lasts until until the autumn, we might see a lot more impact on prices because at some point we're going to have to start filling gas storages again. And in Netherlands they are, yeah very low. So at the moment. Storage isn't really needed. We can basically make deal with the gas and the power that's there. So there's no apparent scarcity, but of course we're all exposed to yeah, to world prices basically. It's interesting so a lot of governments across Europe are looking at providing some support in terms of price caps or doing things around the ETS or other measures. In Netherlands actually, there's no talk of any price support at the moment.

Richard Sverrisson – Editor-in-Chief, Montel News: 12:30

Nothing from industry as yet, but I suppose it all hinges on how long the conflict lasts and when we actually get the gas flowing again through the Straits of Hormuz I guess. In terms of, is there been a debate in the Netherlands about opening up Groningen again?

Jean-Paul Harreman – Director, Analytics, Montel: 12:45

There's no debate.

Richard Sverrisson – Editor-in-Chief, Montel News: 12:47

No,

Jean-Paul Harreman – Director, Analytics, Montel: 12:47

it's closed. It's gonna remain closed. Actually, the process of closing the pits is still continuing through this crisis. Putting a lot of concrete in the openings as we speak.

Richard Sverrisson – Editor-in-Chief, Montel News: 12:57

Okay. Right. So yeah, so that's a clear direction there. Priyanka, the Nordics, obviously very little gas fired generation, not really in that sense, prone to those kind of price shocks, but still that, that, everybody is liable and driven by the price of gas globally. Is there a bigger push in the Nordics about, getting more supply online? For example, there's been moves recently in the news about SMRs being SMRs coming online. Not obviously not tomorrow, but that would take a few years. But what's the situation there? Priyanka.

Priyanka Shinde – Market Expert, Nordic, Montel: 13:31

I think when we look at Nordics, so first of all, let's start with the forward contracts that we've already seen impact in terms of the price rise. Let's say SE four is trading 20 to 30, even up to 40% higher on the forward contracts towards spring and autumn. And winter and so on.

Richard Sverrisson – Editor-in-Chief, Montel News: 13:48

But just so sorry, Priyanka, just to, I don't mean to interrupt, but for those listeners who aren't aware what SE four is, could you explain

Priyanka Shinde – Market Expert, Nordic, Montel: 13:54

That's the Malmø region, the Southern Sweden, yeah. So they're closest to continental Europe. And when it comes to yeah, the in general political direction, I think it's, towards the support of SMRs and nuclear. We're seeing some push in that direction. There's another discussion about interconnectors. Let's not forget that, because as I mentioned right now, we are importing these dry spikes also. And the politicians, if you've listened to some of these, the discussions in the EU commission from the energy minister. So this is actually quite alarming that they're not so much in favour of the Interconnectors towards the continent and so on. So this is something we see both from Norway, both from Sweden which is quite alarming, I would say, because if you look at the hydro deficit that we were talking about. So those are the times when you would rely on imports, when, especially when the continent has invested so much into renewable build outs in the past three, four years. Netherlands, Germany, right? So if you look at Germany, the peak solar generation. Compared to the last compared to 2022, last year was already more than two times of the peak generation. So this is the kind of impact that we are seeing, and we would like to import those to save up on our reservoirs whenever possible. So it's that kind of shift that we are seeing in the politics of the Interconnectors. But let's look at both the sides. I would say not just on export, but also import. So that's something to open up our minds about.

Richard Sverrisson – Editor-in-Chief, Montel News: 15:18

This is quite new for Sweden, isn't it, Priyanka? That, we saw the discussion in Norway and the Interconnectors with Denmark and potentially not being renewed and a very kind of anti feel, anti populous or populous feeling anti new links certainly. But for Sweden, this is quite a new development, isn't it?

Priyanka Shinde – Market Expert, Nordic, Montel: 15:37

I was also a bit surprised and from what I've heard also from my other colleagues, like it's not the way we have seen the political direction in the past. So this is a little bit, yeah. Surprising also for others, I would say.

Richard Sverrisson – Editor-in-Chief, Montel News: 15:49

Absolutely. I think they've come to quite a good solution, mainly with some of the sort of congestion revenues that they reach some kind of compromise with the European Commission, the Swedes, so that's it's just going, it's. Going a little bit positively anyway in that direction that we could say Priyanka but Fintan, I think we're both what Priyanka has made very clearly is that there's been a huge influx of solar power and also wind. Since 2022, what does that do to, to intraday price volatility. And surely there's a, there's quite a lot of opportunities here. Isn't that, for people jumping in with the sort, who have those kind of, the flexibility. I'm thinking primarily of batteries.

Fintan Devenney – Market Expert, Consultancy, Montel: 16:30

And that opportunity is being taken by an increasing amount of flexibility. And this is true I think in many places across Europe. What we've seen now over since the Iran war has kicked off, I have fed reports that there's the amount of money that batteries are making in GP is now doubled. Like people are making so much more money now, and partly that is chasing spreads intraday. But now in this new world order, it's not just in the intraday spreads, the people are able to cash in on. If you just trade at the day ahead level, then you know that because during the evening peak, the prices are going to be so high being set by gas fire generators who cost needs to buy gas at these crazy high prices, and therefore need to sell the power at crazy high prices. The batteries are also able to get in and sell their power at that crazy high price as well. So now they're treating the the spread. Between the lowest prices of the day and the highest prices of the day. And those, that price spread each day has more than doubled on average since the Iran war began. So that's like a real amount of revenue stream that's dramatically increased since the Iran war began. And that, again, I think there's an opportunity there for batteries across Europe, not just in GB.

Richard Sverrisson – Editor-in-Chief, Montel News: 17:35

Priyanka, you'd like to come in there?

Priyanka Shinde – Market Expert, Nordic, Montel: 17:38

Yeah I think Fintan has explained this quite well. So just to put a number to that I would just mention a bit of the statistics. So we've seen the spreads for one hour day ahead calculations in Germany, Netherlands, Poland, even crossing beyond 200 euros per megawatt hour, just in the last week. As a result of this volatility. And this is also observed in, in Denmark and also in the South Sweden. So you can see these kind of, spreads to make benefit from. So these are the numbers which are actually very good, I would say.

Richard Sverrisson – Editor-in-Chief, Montel News: 18:08

So if you're a battery owner, Fintan, you are, you are cashing in big time.

Fintan Devenney – Market Expert, Consultancy, Montel: 18:12

Oh, you're lived your best life. Yeah. If you're a battery owner. Yeah. Right now. Yeah. Yeah, I think the difficulty of being a battery owner is that kind of the goalposts are always shifting, not only do the markets and the market rules change, but also the kind of the wider market behaviour can change as new renewables come online and so on. But right now, I think battery owners are experiencing a win. I think they're gonna take that win.

Richard Sverrisson – Editor-in-Chief, Montel News: 18:33

Yeah, absolutely. What would you agree with that Jean-Paul? Jean-Paul Harreman – Director, Analytics, Montel: We've mentioned intraday spreads, we've mentioned day a-head spreads. There's other markets where batteries are also active in. So if you look at, for example ancillary services markets, what we're seeing, especially in this period of the year and probably for the next two months, is that fossil fuel generations getting pushed out of the merit order during the afternoon. That means it gets shorter running hours or at least a lower utilisation, which means that if they are bidding into ancillary services, markets, which basically are meant to keep the balance in the market, the capacity fees for those assets increase quite a lot. And of course, a battery definitely also profits, but we're also seeing renewables, for example. Benefiting from higher capacity fees for for ancillary services as more and more countries open up their balancing markets also for renewables. So we're seeing people stacking revenues across different markets, and it's interesting to see how more asset types basically play in each market, which is basically yeah, analogous to the the shifting goalpost that Fintan already mentioned in the market's in complete transition. Transition in energy markets rarely happens very slowly. It's always like revolution. Yeah. Over a cliff edge. But, would it be possible, I know I'm putting you on the spot here, Jean-Paul , but if you own say a, I dunno a 20 megawatt battery and in the current market conditions what kind of revenues are we talking here?

Jean-Paul Harreman – Director, Analytics, Montel: 20:08

Whew. That differs too much from countries to country.

Richard Sverrisson – Editor-in-Chief, Montel News: 20:12

But say in the Netherlands, or do, could you say, are we talking hundreds of thousands in terms of profits or revenues, or are we talking a six, seven figure sums?

Jean-Paul Harreman – Director, Analytics, Montel: 20:20

No, we're not talking seven figures. But yeah, I think in 2022 there were assets that, that made like, yeah, between 200,000 and half a million per megawatts installed capacity. It depends on the duration, it depends on the market. It depends on a lot and also liquidity, because sometimes you can have really extreme prices, but very low traded volumes or capacity volumes. Yeah. It.

Richard Sverrisson – Editor-in-Chief, Montel News: 20:47

Yeah, the answer is always, it depends on where you locate here at. Yeah.

Jean-Paul Harreman – Director, Analytics, Montel: 20:50

It depends. Yes. But it's also the reason why we created an index product for different countries, because it's just too much to get your hand around. It's very easy to call out one number, but that number will apply to a single type of asset with a single duration, with a single size, and then, you'll have to be very sure that it doesn't really just eats up its own market in the process because if the market's a hundred megawatts and your asset is 200 megawatts, yeah, prices don't really mean anything.

Richard Sverrisson – Editor-in-Chief, Montel News: 21:22

Yeah, no, exactly. I think those are important, very important considerations Jean-Paul , but Priyanka, are you seeing rapid growth? We've seen growth in solar and in wind, but what about batteries in the Nordic region or the markets that you are covering? What kind of patterns or what kind of development are discernible there?

Priyanka Shinde – Market Expert, Nordic, Montel: 21:39

I would say there's a real, like push towards batteries. Beat Sweden. Beat Finland, also Denmark. So these countries are quite at the yeah. Forefront of batteries, I would say. And as Jean-Paul mentioned in terms of capacity market revenues. So you, from Ansley services, you can make a lot of money because the TSOs in the past few years have introduced some new markets. So again, but we are also facing the same issue that Jean-Paul mentioned in terms of cannibalization, because the market impact of these assets when they enter. It can be dominant that you kill the incentive, so that's also the thing. But nowadays, I must also mention this shift actually. So when the capacity market revenues drop there's more shift towards these type of spot markets and, the yeah. Intraday spot. So these type of markets are wholesale markets aboard. They would be going more towards, because these TSO markets which are operated, they are quite limited in sizes. So you can only get so much out of it. So it's like squeezing out, whatever is there, but then you have to look for other revenue streams. So that's when this type of multi-market optimization and all those topics come up. So I think like today with the increasing volatility that we are seeing, especially in the southern parts and also of Nordics and Denmark and so on it's, good business case for them.

Richard Sverrisson – Editor-in-Chief, Montel News: 22:58

100%. So Jean Paul you'd like to come in here?

Jean-Paul Harreman – Director, Analytics, Montel: 23:01

Yeah. Cannibalization is a very popular word also in, in battery markets. There's one little, one slight nuance I would like to make. It's not that batteries are expected to eat up their own revenues. It's more of a convergence trend. So basically what you expect people to do is behave rationally. So they enter a market. Once that market becomes saturated, they basically move their capacity to a different market. And the end effect is going to be that yeah you saturate all of those markets first, and then you start eating up your revenue. So it's basically people will be active in many different markets to ensure they don't cannibalise. And then, yeah, the cannibalization effect will probably be couple more than a couple of years in the, into the future because there's a lot of other parallel developments that are also ongoing of course.

Richard Sverrisson – Editor-in-Chief, Montel News: 23:57

Absolutely. And that's one of the crucial three Cs, as I call them, cannibalization congestion and curtailment, which ,are the aspects around renewables. Fintan. What's the situation now in NGB and in Ireland as well, in terms of. Getting these batteries. Obviously the business case is phenomenal at the moment, but you know what's the, in terms of waiting times and the queuing to get them onto the grid in the GB and Irish market?

Fintan Devenney – Market Expert, Consultancy, Montel: 24:21

It's long and it's difficult. That's the wait time in some way. I think a lot of people, so a lot of batteries that are coming on stream now that will have previously secured capacity market contracts and will have previously secured good connections. So I think the queue is it's set. I think we've got enough battery capacity that's set to come online for the next couple of years to deliver a kind of like a real. Perhaps a doubling or maybe even a triple of capacity in the next few years. The issue now is if you are now on this day 2026, you're thinking maybe a battery would be a good idea. The queue's pretty full at this point.'Cause people have been filling in this queue for years online delivering through it. On the GB side, there is a change in market design that's coming where they go into overhaul, basically how they process a connection grid requests. So the zombie projects, project that request or something, and then just the company maybe folded or something. Well, the project is still in there. They're gonna cut out all those projects and prioritise things that are ready to go. So it's possibly getting easier in that sense. But yeah, the fact that this, the fact that it's working against you is just how astronomically big DQ currently is.

Richard Sverrisson – Editor-in-Chief, Montel News: 25:29

Yeah, and that's not judges in GB. I think that's across Europe as well as they thing in Germany, the Netherlands, everywhere. But I think the crucial element here is filtering out those kind of zombie applications, zombie companies I think, that are getting, just keeping it professional, but. But JP in all of this, when we see high prices, spiking prices, very volatile prices, what does that do for companies and collateral posting, collateral, margins, liquidity? Have you done any sort of analysis of that?

Jean-Paul Harreman – Director, Analytics, Montel: 25:57

Yeah it was one of the things that, that caught out people in 2022. So I had a look at what happened then, and basically, yeah, what is that if you trade on forward markets, if you trade gas or coal or power, you have to keep a certain margin. And that margin is driven by price deltas. So basically showing you unrealized p and l. But that's a linear a linear relationship. So that, it's significant If prices go up and you bought or you're selling price power at a low price, for example you bought it. You're trying to buy it now. But that's manageable. The thing that makes it difficult is the non-linear part of margins and so the margin is built up from an unrealized p and l and a volatility factor. And this volatility factor in the current market is increasing quite dramatically. And this is non-linear. So a doubling of of volatility doesn't double your margin. It's a multiple of that. And in 2022 Uniper for example, at one point had about 9 billion euros posted purely as collateral. So yeah, that's enough to cause problems for even a profitable business. And serious problems. So you can imagine what this did to the ability to trade by smaller firms. And that basically dropped liquidity. But if you drop liquidity, what happens to volatility? It increases even more because a small trade can have this massive effect on the price. Yeah it's a vicious circle. It's it becomes very difficult to keep liquidity up and that means that your collateral requirements go up. So it's, that's a tricky thing, and I don't think anyone's talking about this very seriously at the moment, but. Yeah. Almost daily press conferences and very regular tweets or truth posts. This is a real risk.

Richard Sverrisson – Editor-in-Chief, Montel News: 27:51

Then you're talking about professional trading companies really, you've often seen in the past that retailers and suppliers have been hardest hits. Is that, could that also happen now? Jean Paul,

Jean-Paul Harreman – Director, Analytics, Montel: 28:03

I think the market wised up a little bit after 2022, and we did have a shakeout of the most ridiculous hedging positions in that period. But yeah it's a risk. You could definitely see a shakeout of slightly weaker suppliers again. Yeah.

Richard Sverrisson – Editor-in-Chief, Montel News: 28:20

Priyanka, I know that, Nordic market liquidity or forward market liquidity is slowly starting to pick up a little bit, but could this massively hit those volumes? In, in terms of if you have big professional trading organisations who are like, wow we can't actually the margin calls are so large that we can't actually go in and take a position or trade that position. Is that a concern for the Nordic market?

Priyanka Shinde – Market Expert, Nordic, Montel: 28:42

So as I mentioned, so far we see this reaction in the forward contracts that are being traded more only in the southern regions of Nordics. So if at all there is any issue with this that is coming up, it's going to be limited to certain regions compared to the whole of Nordics, I would say. But we are also seeing like the shift in system price which is quite important. And then it's important to see how the market would react to it. It'll be important to follow the continent pretty closely because these are really like feeding into these high prices towards the southern regions, which will impact like how the system price will shift compared to each of the bidding zone. So these are important parts when it comes to not expect. That has also been long ongoing discussion due to the biding zones that we have really in Nordics compared to Germany. So Germany has been quite liquid forward market because it's single billing zone and so on. So then that gets, much bigger discussion, I think. But yeah, this is something we will watch out very closely.

Richard Sverrisson – Editor-in-Chief, Montel News: 29:41

Yeah, it's been an ongoing debate for years and years, doesn't it? Priyanka, and I think the bidding zones versus the single big, many versus single. And there probably will continue to be. Even some countries are planning extra bidding zones. But that's for another podcast. I think Priyanka, so Fintan, Jean-Paul mentioned, the margining and how that could really devastate, in terms of wholesale market, in terms of liquidity. Is there anything else that's happening in power markets at the moment, but no one's really talking about that's not so clear. Anything else there? Certain regions that are maybe, going a bit under the radar or certain aspects in the current energy crisis that's worth mentioning.

Fintan Devenney – Market Expert, Consultancy, Montel: 30:16

There's one thing that's pretty substantial. We think that internally we're spending a lot of time thinking about which is that, so labour government has this plan, as I said towards the beginning there they have this plan to really clear the decks in the GB energy market, and they're rewriting the rule book in a number of ways largely that a lot of these changes will ultimately result in, if these changes go through as planned, the result in the system operator effectively taking more control over the market than they currently do. And that's the kind of according to them, the plan is to counterweight like the sheer volumes of things like batteries coming through. So the market is being driven more and more by these, by swarms of smaller units that are making lots and lots of money as we've previously established. So there's lots of flexibility coming through the GB market. We're starting to see now the beginnings of plans that say this is how the market is going to operate under this new rule set that a market that's designed more around managing vast quantities of battery units. It has a knock on effects, right? Where like the market does unusual things. Gas prices go crazy. Batteries make a lot of money. People think, oh, if we should build some batteries, lots of batteries get built. Many batteries get built and now the system operate has a problem where they've got too many batteries and they're trying to manage them all together. The question is, how will that then feed back into battery revenues? Will people start making more or less money on the battery side as a result of these changes to the market? That's what we don't know. I'm sure there are analysts right now working hard to try and model that, see what it would look like under different scenarios. But I think for me it's difficult to people are talking about projecting, okay, batteries are making more money now as a result of what's going on in Iran. Therefore, what will battery revenues look like this time next year, two years from now? I think one of the larger driving factors in that, like yes, the geopolitics, which is of course a big driving factor, but also how the market rules are changing domestically in GB is as big, if not a bigger component of that.

Richard Sverrisson – Editor-in-Chief, Montel News: 32:09

And not so much the invisible hand, but more the strong hand of trying to control all these sort of flexible assets. I think that's that's a very interesting point Fintan. Jean Paul, is there anything else you think that's not really, that's gone under the radar that people aren't really talking about?

Jean-Paul Harreman – Director, Analytics, Montel: 32:24

I think in south southeastern Europe and Central Europe the people are definitely talking about this but what I haven't seen in the larger media. Is that those regions have seen massive summer, evening peak prices especially during heat waves, et cetera. So if you take the current market situation with the high gas prices. Therefore higher evening peak prices. So we're seeing those spreads between solar peak and evening peak demand already increase. If you map that on last year's prices, where we had, I think hours above 300 euros in the height of summer where you would not expect super high evening peak prices in central and eastern Europe. Yeah, with a multiple of the gas price. This could get pretty scary in Bulgaria, Greece, and Hungary. And it's a result of lack of transmission capacity from west to east and older infrastructure and internal congestion issues in those countries. Yeah. This is something that's definitely worth thinking about.

Richard Sverrisson – Editor-in-Chief, Montel News: 33:30

The region has talked about this disconnect between the Southeast Europe, south Central East, and Europe and the Western Europe. In terms of prices, huge difference in price levels. So it's certainly a major concern in that area. Yeah.

Jean-Paul Harreman – Director, Analytics, Montel: 33:41

If you look at the data reports there's a lot of congestion reporting about the Austrian market, and that's basically the hub where the power has to come through towards the Balkans.

Richard Sverrisson – Editor-in-Chief, Montel News: 33:53

Absolutely. Priyanka, I'd like to round off with you you can come back to what what Jean-Paul was saying there about the, those kind of regions that are also facing a very worrying period ahead and what do you feel about, the concerns ahead of the summer Priyanka?

Priyanka Shinde – Market Expert, Nordic, Montel: 34:08

Yeah. Just to add on the thing that Jean-Paul was mentioning about the Southeastern Europe. So this year, luckily the good thing is that the hydro balance there, hydropower balance is looking better than last year. So that's going to be probably a little bit of a saviour factor there. But yes, I would definitely check at any planned outages of some of the pipelines, which was also the situation last year. So if they are under control and as a flow-based market company, this is one of the topics of transmission capacities, allocations, which had Austria acting as some of the bottleneck towards entering the flows in Slovenia and hence forth in Hungary and so on. So those were some of the reasons I would watch out that very closely. But another point to, to mention is also about the eu EU allowances and also the EU ETS. So there's, reforms potentially being discussed and Italy at the forefront, because obviously Italy one of the countries, which is hard hit by the current energy crisis because they're large importers of gas and they depend a lot on this. So Spain doesn't like this because if you look at them, they're they're heavily invested into renewables. Solar is already on the peak. They are all leading with the negative prices and so on. So there's a bit of this difficulty in aligning this into what would be the, policy reforms. And if they happen, they will have to happen in a coordinated way across EU. So I think this is something we will watch out closely because the EU ETS, this plays a big role into defining the profitability of coal versus gas. So that plays a role into the clean, dark spread and clean spark spread, which we define. Right? So coal starts to get profitable if you reduce the EU allowances. So the prices for that, the carbon prices. So that's something we would watch out on to see how this goes because it's eye opening to see how many of our fuel mixes within EU really depends still a lot on gas. So if we are able to, this will, this again is a stock reminder of how we need to invest more into renewables so that we come into, fuel mixes which are less, and less reliant on gas potentially. So that's one of the messages. The second messages would be investing more into interconnectors and market coupling. Another important message this will leave us with is how are we going to work closely together and the market design, the policies, how clear will they be? Because this really has a kind of reasoning on what kind of investment decisions will be taken and so on in the future as well. So can we be clear on any market interventions that are done? Can we just have them temporary and clear and coordinated and thought through? So that is something I would leave this flow with.

Richard Sverrisson – Editor-in-Chief, Montel News: 36:44

Yeah. Yeah. Will be eyeing any press conference from Italy or from the EC and from Spain certainly were my reporters will be following that very closely Priyanka. It does seem to be, there is a bit of a split emerging here, but the, that we are on the energy transition, but there may be some, back flipping here a bit, but Jean-Paul, the final word is yours.

Jean-Paul Harreman – Director, Analytics, Montel: 37:03

Yeah, no, just to weigh in on that Italy story I think you can't really un see the relationship between the upcoming elections next year in Italy and the efforts to reduce the energy bill. And yeah, what we see in recent history is that sensible policy generally doesn't get you elected. So what is basically happening is that if you remove the ETS component from your power price, you reduce the energy bill. Hurrah, every, everybody happy. But of course, this bill will come back because the cost will have to be born anyway. It's just obfuscated. And maybe that gets Maloney reelected, but it is a bit controversial to do this and basically undermine the whole mechanism of stimulating low carbon power generation. Even if it's gas, it's still better than coal.

Richard Sverrisson – Editor-in-Chief, Montel News: 37:59

Yeah, it undermines the, potentially the internal energy market and certainly the European Emissions Trading scheme. I could talk, I feel I could talk for hours here with you guys, but it's been a fascinating discussion. Plenty of fantastic insights and views. So Priyanka, Jean-Paul and Fintan, thank you very much for being guests on the Plugged in Podcast. And to you listeners, thanks for listening to this episode of Plugged In. If you enjoyed this discussion, please like, rates and follow to make sure you get the latest podcast episodes as soon as we release them every Thursday. We'd also love to read your reviews of the podcast. It helps us to keep up to date with what you, our listeners, think of the podcast and what content you want to receive more of. Finally, you can head to montelnews.com for more news and analysis from our team of journalists across Europe and beyond. See you next time.