It never takes long for the energy markets to remind us of that old Wildean adage: Expect the Unexpected. By the beginning of March, it was looking increasingly likely that we could come out of this most precarious of winter periods relatively unscathed: with far-better-than-expected storage levels and optimism that, perhaps, the European markets could survive without an abundance of Russian oil and gas. Just as it was whispered that, other things being equal, we may be able to look forward to a rare period of low volatility, we were given a stark reminder that in energy, other things are very rarely equal.
On the 10th March, France’s state-controlled utility, EDF, announced that they had discovered a stress corrosion crack at their 1.3GW nuclear reactor, Penly 1. France has been plagued by low output from its nuclear fleet over the last few years, after a similar issue was reported at its Cirvaux power station in October 2021. Overall, nuclear generation in France dropped to 62.7% in 2022, down from 69% the year before.
France’s nuclear safety authority, ASN, has warned that ‘The case of Penly 1 seems to highlight a new cause of SCC (stress corrosion) near welds that undergone major repairs’ and that ‘this phenomenon can potentially concern all reactors, as all have repaired welds’. This announcement sent shockwaves through the already fractious European markets: the Q1-24 contract in France was most-affected, rising by almost 60% over a couple of days. While UK contracts were affected to a lesser-degree, the Winter-23 contract rose by around £20/MWh in the immediate aftermath.
Thankfully, all of this risk premium has now come out of UK pricing, with the market’s attention now turning to – yet another – unexpected event: a worsening banking crisis following both the collapse of Silicon Valley Bank and the ‘emergency rescue’ of Credit Suisse. Expect to see further developments through the year as the market continues to be pushed and pulled by competing fundamental drivers: significant supply-side risk as the scale of the French nuclear issue becomes clearer, against a very-real risk of demand-side destruction through worsening economic data. ALFED members with a budget-driven strategy may want to consider taking advantage of the current market lows to lock in their contracts, particularly in the context of this increased volatility.
The importance of ensuring you have a procurement strategy in place which will help you navigate these volatile markets is more crucial than ever. If you would like to discuss your procurement options in more detail, Open Energy Market are here to help ALFED Members, and can be contacted via email – j.rich@openenergymarket.com – or by calling 07710 098 144.
