“Strange” prices rattle Europe's power markets

Across Europe, power prices are behaving in ways that are leaving even seasoned market participants questioning what they’re seeing. From negative prices to seemingly counterintuitive flows between some price zones, the electricity system is becoming harder to interpret, and certainly more complex.

On April 6, negative prices of EUR -15,000/MWh in Belgium's balancing market highlighted just how volatile and weather-driven Europe's power system has become. But are these signals a sign of dysfunction, or simply the reality of a system in transition?

So, what’s really going on beneath the surface?

In this episode, we unpack what’s driving so-called “odd” or “irrational” pricing across Europe, from the rise of renewables and battery storage to the increasing role of algorithmic trading and complex market design. We also explore whether market participants are equipped to handle this growing complexity, and what risks and opportunities lie ahead.

#EnergyMarkets #PowerMarkets #ElectricityPrices #EnergyTransition #Renewables #NegativePricing #EnergyTrading #Volatility #EuropeanEnergy #GridSystems #EnergyCrisis #ElectricityMarket #NetZero #BatteryStorage #AlgoTrading

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

Guests:
Alina Trabattoni – Italy Correspondent, Montel
Frank Boerman-Lima – Flow-Based Capacity Calculation Expert, TenneT
Julien Jomaux – Energy & Power Consultant

Editor:
Oscar Birk 

Producer:
Alexandra Carlon

Transcript

Europe’s New Era Of Price Chaos

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 you the latest news, issues, and changes happening in the energy sector. Across Europe, power prices are behaving in ways that are leaving even seasoned market participants scratching their heads. From sudden spikes to counterintuitive flows to very, very low prices, what once felt like a relatively predictable system is now anything but. In particular, I'm thinking of some recent incidents. For instance, April the 6th in Belgium, when balancing prices hit minus €15,000 per megawatt hour, and they are had prices of €200 a megawatt hour for the 14th of April in the price area around Trondheim in central Norway, when prices further north were a mere 8 euros. So what's really going on? Are Europe's power markets becoming harder to understand? Or are we simply entering a new level of complexity that market participants will need to adapt to? And when prices behave in ways that don't seem to make sense, what does that actually reveal about the system underneath? I'm very pleased to be joined for the scene set with our own Alina Trabottoni, who's Italy correspondent and working out of Rome. So a warm welcome to you, Alina.

Alina Trabattoni – Italy Correspondent, Montel 1:24

Thank you very much, Richard. It's great to be on Plugged In.

Richard Sverrisson – Editor-in-Chief, Montel News 1:28

You've covered the balancing markets and the intraday markets and general markets for a very long time now, Alina. What do you think Europe's power markets are becoming fundamentally harder to understand, or are we just sort of entering a new normal of increased complexity and volatility?

Alina Trabattoni – Italy Correspondent, Montel 1:43

Well, actually, Richard, do you know what? Both, but the distinction you make actually really matters. The markets, at least according to traders and other market players I speak to, well, they don't see the markets as broken. What they say is happening is that the system's actually changing much faster than the institutions, the grids, and of course the contracts can adapt to. So what they're having to do is play catch-up, and that gap is what makes prices feel very disorienting right now. And that's because for decades power prices followed a very specific logic. So, you know, you'd have things like weather, demand, marginal fuel, that would very much have an effect on prices. And of course, it's got to be said that model still works, but it explains less of the day-to-day action than it used to. I mean, at the end of the day, we're shifting from a dispatchable fossil-fueled system to one that's shaped by variable renewables, electrification, tighter cross-border integration, the works. And and now prices are set more often by short-term conditions, so things like, you know, solar surpluses, wind output, EV batteries that are already full from the day before. So it's all very different from the well-known smooth fuel cost curve that we were all so used to for so long. Also added to that, algorithmic trading increasingly dominates intraday markets in ways that can cause really sharp, fast moves with no fundamental driver visible. So uh so yes, yes, absolutely, there is a new normal of volatility. But again, I wouldn't specifically call it harder to understand. I'd say it's harder to understand without dated assumptions. So let me give you an example. If something makes no sense in Italy, it may actually all become clear if you take a wider bird's eye view of the entire region or of Italy and the neighboring interconnected markets. And once you start to make that shift, a lot of what looks like noise, like confusion, like irrationality, well, it starts to look like logic.

Richard Sverrisson – Editor-in-Chief, Montel News 3:48

And and when prices behave in ways that don't seem to make sense, what does that tell us about the system?

Alina Trabattoni – Italy Correspondent, Montel 3:55

Well, Richard, in actual fact, when a price looks irrational, it's almost never actually rational. It's basically the market revealing a constraint and doing exactly what it should. A negative price, for example, signals oversupply with nowhere to go. A spike, a price spike, signals the very opposite. So flexible backup may be scarce or demand has concentrated at the wrong place at the wrong time. And today, I think we're all aware that across the board, what used to be considered extreme events or an extreme event, well, they seem to be occurring more and more frequently. And more often than not, those that suffer from these or that are caught unaware are the ones that don't take stock of the changes that are happening and account for them. At least according again to the traders and analysts I speak to. But it is true. I mean, what we saw with Picasso, when spikes hit, I don't know, 11,000 euros megawatt hour in Poland and Italy as well had extreme price uh cases, but many other countries as well had extreme anomalies. This, too, is a reminder of what happens when market design hasn't caught up with a system complexity and is not accounted for. And there are many other changes in the pipeline that will further affect the system. You know, those uh more frequent intraday capacity recalculations. We're seeing that in Italy, for example, in past months. And it's basically the system recalibrating to close the gap and embed the current operations into prices more accurately and more often. So the market isn't becoming random or irrational, it's simply becoming more granular and more demanding of the people trading in it. And at the end of the day, the practical uh takeaway from, you know, this discussion, I guess, is that irrational prices almost always point to a missing layer. So to storage, demand response, grid capacity, market design, of course, fundamentally. So whilst the volatility is real, so is the information it contains within it. And we need to take stock of it, basically.

Richard Sverrisson – Editor-in-Chief, Montel News 6:00

It's a brave new world, in other words, then Alina. Thank you very much indeed for your insights and your explanations here.

Renewables And EVs Reshape Pricing

Alina Trabattoni – Italy Correspondent, Montel 6:06

Thank you. It's uh been great to talk to you about this. It's a really interesting topic.

Richard Sverrisson – Editor-in-Chief, Montel News 6:10

Now I'm joined by Julien Jomaux, Energy and Power Consultant, and Frank Boerman-Lima, flow-based capacity calculation expert at TenneT, to unpack what's driving these so-called irrational prices and whether they're actually irrational at all. So we're joined by two experts working right at the heart of Europe's power system. A warm welcome to you both.

Frank Boerman-Lima – Flow-Based Capacity Calculation Expert, TenneT 6:34

Thank you.

Julien Jomaux – Energy & Power Consultant 6:35

Thank you.

Richard Sverrisson – Editor-in-Chief, Montel News 6:36

I'd like to start by looking at what we've seen a rise in what many are calling irrational or weird pricing across Europe, all the way from Norway right down to Central Western Europe. How would you characterize what's happening at the moment, Julien?

Julien Jomaux – Energy & Power Consultant 6:52

So, I mean it depends what you mean by weird pricing, but yeah, indeed there have been some moments where we have seen some not very intuitive pricing. I believe that's basically because we have we are seeing an increase of renewable, but also batteries and also loads electric vehicle which is based on batteries. So there are quite a lot more complexity that is coming to the system, which can also have an influence on what we are seeing on the markets.

Richard Sverrisson – Editor-in-Chief, Montel News 7:19

Could you give some examples, Julien, in terms of how how those factors play into some of the pricing dynamics?

Julien Jomaux – Energy & Power Consultant 7:26

Yeah, if you have more renewables, you basically need to have more like better weather forecasts. And if you have any issue with weather forecast, if you have some errors and the weather forecast, then you can have like a strong impact on what you are seeing in the prices, I mean the short-term prices. If you have more and more weather-dependent resources, it's logical that you will have like uh an increased exposure on the weather forecast. And this is becoming more and more critical as we expand I mean solar and width. But also I would say that another example, for example, is the adoption of electric vehicles. That if you have like, for example, two days, two consecutive days with a lot of renewables, then for the first day the prices will be already low. So potentially a lot of people have already charged their car. So the next day with the same kind of you know production capacity available, that you might have less demand because you know the battery has already been charged in a way. So you can have like those kinds of influences from one day to another, which is basically because we have new kind of loads in the system as well.

Which Markets See The Extremes

Richard Sverrisson – Editor-in-Chief, Montel News 8:36

And what markets, Julian, are we talking here? Are we talking about the day ahead, the intraday, the different kinds of balancing markets, the ancillary services, or all of the above?

Julien Jomaux – Energy & Power Consultant 8:47

I mean, they're all of the above are a bit impacted, but in a different way. So if we really look at kind of the day-ahead markets, then then the weather forecast model and I mean are less important because it's you know it's it's too I mean it's for the day before. So but if you really look at the balancing market and the intraday market, which in a way it's very much linked because it continuous intraday is basically also kind of a continuation of the balancing, then the waiver forecast plays a very critical role there. So it really depends on what you are looking exactly and the time frame. But I would say that the the we are pricing, the extreme prices that we have seen, it's it's it's mostly linked to the balancing market and to another extent the to the intraday continuous market, which is kind of a continuum, you know, because market players they tend to go also to cover their balancing risk.

Richard Sverrisson – Editor-in-Chief, Montel News 9:50

What I mean, Frank, I know you're not an expert on the balancing market, but you work at a TSO, you see some of the power flows. I mean, what do you think are the key drivers here that are seeing these kind of which some would say strange prices, others would say it's easily explainable due to the dynamics that Julien is talking about. What's your view here?

Non Intuitive Flows

Frank Boerman-Lima – Flow-Based Capacity Calculation Expert, TenneT 10:12

Yeah, I think I largely agree with Julien, and because when people say strange, it's usually compared to a certain frame, right. So, and I think what we're currently seeing is that we are in a transition, there is a lot of changes at a rapid pace, and then it people tend to not always keep up, and then they're like, Oh, this is strange when it's actually not. A good example of this is of course the introduction of non-intuitive flows, so that means that in it in the context of a day-head market, the day-hat algorithm, euphemia, can schedule a flow which at foresight is not is not intuitive, it's not logical, but if you look at the broader regional automation picture, it does unlock more welfare. And you see that when it was introduced in in the Central European area, there were people uh questioning it, and now you see this for the last like year, ever since Nordic flowbase went live, you also see it in the Nordics. But I think it's partly also tied to the fact that we have a very complex system with differences, and even small input differences can cause quite large swings in your outputs, which any control engineer can tell you about, and then people find this strange, and this is usually not always, but usually a lack of understanding of certain specific topics, which is understandable because it's a really complex system. But yeah, in the end, I would say it indeed we are more weather-driven, and then this causes certain changes, but they're explainable, but it can occur to be strange at first sight.

Richard Sverrisson – Editor-in-Chief, Montel News 11:47

And we had an interesting example. I don't know if you followed the markets in the Nordic region, Frank, but the prices for today that were set yesterday were in one area around Trondheim and were almost double that of surrounding areas, and where as the northern area had eight euros a megawatt hour, the Trondheim area had 203, and flows were still going flowing north to the very low-priced area. So, for that reason, many would say that's very strange, but you would say that's explainable.

Frank Boerman-Lima – Flow-Based Capacity Calculation Expert, TenneT 12:17

Yes, usually this means that the non-nativity flow or the strange flow enables an interaction somewhere else in such a way that the total gain of of the market trades is more positive, and that the business case is improved, and it's really a difference between looking at a specific flow and zooming in on that while you're missing the bigger picture of the overall warefall optimization. And of course, you can still criticize the way the algorithm optimized, that is totally fine. But what is sometimes a bit difficult in discussions, especially from a TSO side, is if somebody finds something strange and then misses the forest for the trees, basically. So that makes it very difficult. So I always find it's completely acceptable to open a discussion about how Euphemia, the market algorithm, optimizes, but then you should look at the whole region and the grid constraints and not only look at a certain one price or one flow, because nothing happens in isolation, especially not in the day-ahead market with a Euphemia algorithm.

Richard Sverrisson – Editor-in-Chief, Montel News 13:24

But if I was a kind of consumer in that region around Trondheim in Oslo in the NO3 area, I would say, Am I being sacrificed for the greater good of the the Nordic market as a whole? Would that, would that be

Frank Boerman-Lima – Flow-Based Capacity Calculation Expert, TenneT 13:37

And that is a fair comment to make in that moment. But what people forget is that there have been counter studies in this, that if you average your losses and gains, quote unquote, over let's say a whole year, then in the end everybody gains by cross-border trade. But it is possible that these gains are coming at the expense that in certain hours, yeah, sure, you might not be the one optimized. But the overall, over the whole year, everybody gains a lot compared to a fully outarchic situation.

Richard Sverrisson – Editor-in-Chief, Montel News 14:12

That's the difficulty of explaining this kind of new system, of course. And that's partly the job of TSOs such as your yourself, Frank. But Julien, what I find fascinating is that Frank even mentioned it, but such small changes in input like a car batteries or an aggregated EVs could result in such different pricing dynamics, you know. And I think that's the intriguing part here, or the change in EV charging from one day to the next, because the cars are full, so they don't need to be charged on the next day when there's a period of of renewable output. I mean that's quite a huge change, and and I think do you expect that level of complexity and granularity to continue?

Julien Jomaux – Energy & Power Consultant 14:52

Depends where exactly, but I mean if you speak about the, I mean the day ahead market, which is kind of the busy market, I would say, I expect that volatility in the prices will probably increase because we'll have you know more differences between a day with renewables and a day without renewables, so a day with you know battery are empty and battery are full, if I can be very simplistic. But so I expect you know this volatility to increase there in the day at market. But in the balancing time frame, which is much closer to real time, I expect quite a reduction in the volatility somehow at some point because we'll have more and more battery capacity coming into the market. So that should actually stabilize the very short-term differences that we might see, which is probably not what we are seeing today because we are still in the kind of the starting phase of the boom for large-scale batteries, but at some point I think it will stabilize. But the volatile in the dead market will probably be increasing for the next few years at least.

Richard Sverrisson – Editor-in-Chief, Montel News 16:01

But if I'm a renewables producer, I don't know, in some part of northern Europe on the continent, and I have 100 megawatts, and, and I see, you know, either I need to get absolutely the best weather forecasts available, which is not cheap, or is there a case where I could maybe just hold off and not go into the day-ahead market but go into the intraday market where prices are a little bit more stable or not as volatile because I could be hit quite badly?

Frank Boerman-Lima – Flow-Based Capacity Calculation Expert, TenneT 16:29

I wouldn't necessarily call the intraday market less volatile.

Intraday Bots And Trading Risk

Richard Sverrisson – Editor-in-Chief, Montel News 16:33

Okay, okay. Fair enough, fair enough. But I was thinking, like, in terms of yeah, so that's a fair comment, Frank, absolutely. But we are, you know, I mean, you know, anecdotally hearing stories of people not, you know, or or not going fully in with our who's in the dayhead holding back. I mean, is that a fair assumption, Frank? That that's you know,

Frank Boerman-Lima – Flow-Based Capacity Calculation Expert, TenneT 16:52

it's a risk appetite question, I would say, because it can be true that the intraday market is less volatile or more predictable because it kind of oscillates around the day-head market price-wise, you can usually say, but there is a huge increase in alcohol training, so algorithmic bots in the intraday market, which can cause very violent volatilities from time to time, and that creates a risk that is hard to predict from time to time. So, if you're in the intraday market, you need to be really prepared that it can go really fast up and down. So, you when I talk to market parties, you hear that less and less market parties are manually clicking in the introday market because you cannot compete with bots that are doing that. This is different from futures where the volatility is much lower and the volumes are lower, and the day ahead market, which is an auction, so you don't need to be the fastest. And so that if you have a certain risk appetite, then yes, it can help, but you need to have some specialized knowledge for this, and that makes it that makes it quite difficult. And a famous example of this is, for example, if you have intraday auctions, which we have three times in a day, we close cross-border trade as a preparation for the intraday auction or IDA as we call it. What happens is you can actually see in the order books that algo trading will push the prices apart from each other, for example, between the lesson and Germany, without a true fundamental reason. That's just algo bots trading on sense against each other to test each other out. And then once the gates open again after IDA, these order books collapses, and then you see a huge peak in volume. That's purely algo driven. There's nobody who's like chilling at his desk at 10 in the evening and going, like, oh, you know what I'm gonna do? The gates are closed, you know, let's move the market. That's just that's just bots. So it really depends on your expertise and risk appetite, I would say.

Richard Sverrisson – Editor-in-Chief, Montel News 18:51

But is that the best? I mean, there's a there's a probably a discussion. Is that the ideal market structure and the ideal system that we have? But that's probably that's for another podcast, maybe, Frank. But but what's your view here?

Frank Boerman-Lima – Flow-Based Capacity Calculation Expert, TenneT 19:03

Very shortly, for me, yes, because the idea of day head is that it can fast respond to changing situations on the day itself. Is it logical that this becomes in a fairly large amount automated? Because then you can react fast to it, it becomes kind of a precursor to balancing. For me, that is fine, but not I know and not everybody looks at that. But to me, that is like that is then the role of the intraday market. And if you have the more yeah, more foundational uh strategies with humans, that would be more a day-ahead market because you have more time for it as well. But I don't know what Julien thinks.

Richard Sverrisson – Editor-in-Chief, Montel News 19:41

What do you think, Julien? I mean, is it the the day ahead is more got the human touch and the intraday has the machine touch as the slave to the algorithm?

Julien Jomaux – Energy & Power Consultant 19:50

I mean, I will tend to agree because basically, as Frank was saying, is that the intraday is more like the kind of the basis market, you know, where like most prices will be settled, also the future market will also be settled against the day market. So it's kind of like the reference market, and then everything that is after the dead market and before real time can actually be due to like I mean the difference between what you expected the day before and the reality, and this is can really be done by algorithmic trading, especially in a context with a lot of large-case batteries coming to the market. Those alco traders with the batteries they can really actually deal with this kind of a short-term deviations.

Richard Sverrisson – Editor-in-Chief, Montel News 20:36

No, no, it's I mean it's a fascinating area which we're moving into, I think, and in terms of the the market, the way it operates going forward. But do you think traders and operators, producers are equipped to deal with this increased complexities, Julien?

Julien Jomaux – Energy & Power Consultant 20:51

I mean, I think they will have to be, they will have to adapt. So it's not a matter of are they I don't know, it's a matter of more like are they willing to make the process to I mean their process to be equipped for that. So they will have to invest in this kind of technology and the kind of way of trading. It's an adaptation process, but at the end of the day they will have to. That's my feeling.

Richard Sverrisson – Editor-in-Chief, Montel News 21:18

And maybe AI will come in here as well and help out Julien.

Julien Jomaux – Energy & Power Consultant 21:23

I mean, yeah, yeah, of course AI will will help somehow, but I mean that's I don't like to say AI will save the world, you know. So yeah, no.

Richard Sverrisson – Editor-in-Chief, Montel News 21:32

Yeah, certainly not saving the world, but maybe, yeah,

Julien Jomaux – Energy & Power Consultant 21:35

No that will help for sure, but the fundamental still has to be understood, and the fundamentals of why we can see sometimes the real prices, which Frank has explained that there is always kind of a reason for that. And the fundamentals have to be understood by the people that actually you know write the codes for the algorithmic trailing, but of course. Those coder they will have by AI to make the process more efficient.

Richard Sverrisson – Editor-in-Chief, Montel News 22:04

Frank, what's your view here?

Frank Boerman-Lima – Flow-Based Capacity Calculation Expert, TenneT 22:07

I think AI is a bit of a hype term, right? I think deep learning models, machine learning, has been used, especially in weather forecasts, for ages now. So that's not a new development. Certain inputs to the TSO process also use this. So that's not that strange.

Big Market Design Changes Ahead

Richard Sverrisson – Editor-in-Chief, Montel News 22:26

Fair enough. I mean, do you think in terms of I mean the system is growing in complexity when you come down to the granular level of EV batteries and you know certain demand centers and and you know general consumption and production picture. Are there more system changes coming, Frank? Can we expect more changes to the markets? Could you explain some of those and how they would work?

Frank Boerman-Lima – Flow-Based Capacity Calculation Expert, TenneT 22:53

It's actually a pretty busy year, to be honest. So last year, of course, we had the change from hourly to 15 minute time blocks in the day ahead market, which was a pretty big change, and a lot of capacity changes were of capacity calculation changes were waiting on that. So, what for example, we now have the upcoming this year, one of them is advanced hard coupling. So that means that we forecast borders between different capacity regions better. So, for example, of mainly between the continent and the Nordics, that we forecast the effects and we take the effects better into better into account. And so that's one big change. Currently this is foreseen for in May to go live. So let's see if we make that, but hopefully, yes, 20th of May. And then also soon we will release more updates in the intraday market. We will release new intraday capacity calculations updates basically. So throughout the day, what we do in intraday is we every six hours run, or at least is foreseen in the end, every six hours we update the capacities for the remaining hours of the day. And currently the first three calculations have been implemented, and the fourth and the fifth will go live this year, and that's quite an exciting change because the thing is that in intraday we trade in an A to C manner, so that means that you have a single capacity number per border direction. While in day ahead, we have this fancy flow-based domain and it can encode all kinds of situations. So in intro-day, what we do is we we still calculate the domain and then we convert it back or we extract basically a per border capacity. It's it's we simplify it because the intro-day allocation is a simpler mechanism. And the problem with this is that you cut away some capacities and we do this in an equal way. So we say that we treat all borders equal, but in the market, not all borders are equal. Certain borders make more economic sense to give more priority. And in a way, you can solve this by simply running your extraction more often. So if you update the capacities, and every time you again distribute all capacities across all borders, you will open up certain borders which have been used by the market at the expense of others which have been used less. And so this year we will release what we call IDCC D and E. It's just a strange numbering, but it's basically the fourth and fifth calculation during the day. And then you will see traders will see more updates of capacities in the intraday time frame, and that's really exciting because then there it's an efficiency step. Because if you do the extraction more often, you will open up borders in which the market is pushing, if possible, of course, and that really helps the intraday market. So that's really cool. So those are those are two big changes, and that's really the upcoming months. And the other one that I try to name everywhere that I go because a lot of people forget this is the removal of long-term capacities in the day-head market. So currently we put we force long-term capacities in the day-head market, that that is always guaranteed that this is available in the day-head market, and that will be removed, it will become completely a virtual financial product. Hopefully at the end of this year, we're currently going through the regulatory process for this. It is not final yet. The other things I talked about are final, and this is not final yet, but it's being built. So, and these can have quite major impacts on day ahead introday. And they're all going live this year. So that's really exciting and something to be aware of your market part.

Richard Sverrisson – Editor-in-Chief, Montel News 26:41

Absolutely, and then this will increase the transparency for market participants, you're saying, as well.

Frank Boerman-Lima – Flow-Based Capacity Calculation Expert, TenneT 26:46

Yes, because every time we do a recalculation, we publish everything again. So you have more moments in with in which there is a transparency from us, the TSOs, what we're doing, what we're seeing in our grid models, and how much capacity that releases. So this also brings more transparency. Now you can, of course, start forecasting this. There are sort of fundamentals under this. It's not we don't spin a random number generator, which sometimes people think that there is a fundamental reasoning about this, and you can you can forecast this as well, it just becomes more complex, especially AHC is advanced hard coupling, makes it a bit more complex. But I need everybody to be aware of this and not be caught out.

Investment Signals And Missing Money

Richard Sverrisson – Editor-in-Chief, Montel News 27:31

Yeah, exactly. So come back and say we didn't we don't understand the pricing or the capacity calculation, and then you're saying exactly that. So Julian, if I can come back to you. I mean Frank mentioned the the move to to 15-minute trading, the trading period. What's your view here? Has that been a success?

Julien Jomaux – Energy & Power Consultant 27:49

I guess yes. I mean, I don't have anything to judge, it was a success, so I guess it's working fine. So I guess it's a success. I mean, we still see this uh sea tough pattern, CISO pattern, but I guess with time that the market will kind of adapt between trading hourly and trading quite quite hourly. But yeah, I mean I don't have anything to say that, that was not a success.

Richard Sverrisson – Editor-in-Chief, Montel News 28:15

Okay, exactly. About, you know, we talked a lot about these volatile prices, and sometimes although they're explainable, they may seem a little bit odd. Do they provide the right market signals for for investment and for those trading decisions, Julien?

Julien Jomaux – Energy & Power Consultant 28:33

Yeah, I mean I would say two different things. So the first thing on investment signal, I mean investment in the energy sector, it's for very long term, so it's like 10 years on plus. So this is the basic question do like energy price signal actually enough to justify any investment? And I believe that the answer is probably no, most of the time, because it's very short term. We have seen quite dramatic changes actually in the energy market. So if you remember in 2020 it was COVID, so all prices were like I mean very low. Then we have this energy crisis where extreme prices everywhere, and then now we have this surge in solar, so we have seen in five years like dramatic changes. So as an investor, I mean if you have to decide on an investment and only based on the energy prices, it's actually extremely difficult to make any investment decision. So we have this missing money problem, which basically means that we have capacity markets that are in in quite a lot of countries now, but we also have this uh support for renewable like contract for difference that are like also in quite a lot of countries. So because to make an investment decision is quite hard just based on the energy prices. And then the other part of the question is more on the on the trading signal, to like to do like some short-term trading. And I would say that's they are basically enough yes to make uh I mean trading decisions and and yeah, they're they they serve for that, I would say, because at the end of the day, like the those the signals to kind of optimize what we have compared to what we need for like the short term, but not not necessarily for the very long term, which is more like investment decisions.

Richard Sverrisson – Editor-in-Chief, Montel News 30:31

Absolutely. But then the investment decisions into batteries or into the into solar production would come when people would be looking at the current volatility and the way the market's operating, right?

Julien Jomaux – Energy & Power Consultant 30:43

Yeah, yeah. But I mean, if you really want to invest in solar, just purely solar, there will be less and less countries where actually it makes sense purely with energy prices. So of course you will have like those projects which is collocated solar with batteries, which can make sense. I don't say they will always make sense, but they can make sense. But then even batteries at some point, they will have to, I mean, they will probably need also some kind of a capacity market to make the investment decision bankable. So it also depends very much from one country to another, but yeah.

Summer Risks

Richard Sverrisson – Editor-in-Chief, Montel News 31:22

Absolutely, and and we've talked about the the complexity, the volatility, but you know, looking to the next six to twelve months against the backdrop of a severe energy crisis due to the war in Iran. If we look at the Central Western European power market, what are the key risks and opportunities that market participants should be watching now, Frank? Do you think?

Frank Boerman-Lima – Flow-Based Capacity Calculation Expert, TenneT 31:44

Yeah, I so of course there are a couple of things. You're right. Indeed, we are looking at a very uncertain situation surrounding the gas market, and gas market still has a very dominant effect in a day-head market, simply because we have the marginal pricing. So I think that is going into the summer, the biggest question mark because a lot of the other things are following a more or less predictable pattern, of course. Renewable out, build out, etc. is yeah, that follows a certain trend. So I would foresee that the gas market influence is the biggest one right now, and then for the general system, because for example, changes like AHE will not suddenly hugely change prices, it will make it more difficult to forecast capacities and it's a bit more complex and it will be more efficient, but it will not suddenly swing the prices. So, to me, the main thing indeed is the gas thing, and of course, will there be another heat wave? Because if we have a very severe heat wave, especially in eastern southeastern Europe, you get this double effect of a high increase of your load because people turn on their echoes, while at the same time, and I think a lot of people in the general public miss this is that the generators will shut off if they cannot lose their cooling. So the air, especially in nuclear reactors, are really sensitive to this. It's also of course for France, but there are also some in Eastern Europe, which shuts off if they cannot lose their cooling. And that happened in past, I think most famously in 24, it was really extreme. In 25, it was a little bit less extreme, but it can happen again. There are, I'm reading some publications about scientists warning that there will be a big new El Nino effect. So this global warming always goes a bit a little bit up and down. That goes to a higher again, and then we can have some severe strains on the market in the summer. I think that's really those two things, a heat wave and and gas, and especially the combination of those two, will yeah, it could be difficult. And also other facts, for example, if the rivers go lower because of low, low rainfall and a lot of heat, then also stuff like coal transport in Germany is threatened. So all of these weather things can hit quite severe if they all go at the same time.

Richard Sverrisson – Editor-in-Chief, Montel News 34:13

A cocktail of different factors. What's your view, Julien? Do you share what Frank is saying? Maybe any other risks and or opportunities?

Julien Jomaux – Energy & Power Consultant 34:21

Yeah, no, I completely share what Frank was saying. Just to add on the heat wave, it's also if you I've lived in Southern Europe, so I can tell you that when you put your air conditioning, it's not doing the well when it's midday, but you put it in the evening when you don't have solar anymore. So basically you have I mean people tend to figure, but you you will have solar, but actually it's kind of like a few hours difference, which makes a big difference for the power system. But yeah, I mean people should look in the next six or twelve months. That was your question. It's more on, if you get related to like kind of five-tailed distribution, so the extreme events that can happen, but are not so rare. So we have seen that last week in the the banding market, which has also had effects on the intra-day market. But those events, it's important to try to see when they will happen because that's where you want to be hedged against them if you're exposed to those prices, or it's where you want to be actually be available for delivering if you can profit from those prices. So those you know, like it's all the prices are not in a very nice normal distribution. You you've got some fat-tailed at the end of the distribution, and it's during those moments that you might want to capture on those, you know, very beneficial prices.

Thank you and goodbye

Richard Sverrisson – Editor-in-Chief, Montel News 35:51

Yeah, absolutely. By increased forecast being very well, there's massive risks out there, I think, and people can get caught out quite easily if they're not on top of the game in terms of forecasting and you know the the bigger picture. Oh, absolutely. Frank and Julien, thank you very much for being guests on the Plugged In podcast. A fascinating discussion, and I think it's just an introduction to maybe what's coming in the months and years ahead. So great, great to have you on board. Thank you. And to you listeners, thanks for listening to this episode of Plugged In. If you enjoyed this discussion, please like, rate, 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.