* OPEC, winter, French nuclear fears spark price rallies
* Related coal, carbon markets also respond strongly
* Rally may be blip but could endure, traders say
By Vera Eckert
FRANKFURT, Sept 29 A jump in European power
prices for next year triggered by French plans to carry out
tests on some nuclear reactors during the winter months has
revived wholesale energy markets after years in the doldrums.
Traders were surprised at how quickly forward prices soared
when news emerged on Wednesday of possible electricity output
cuts in France, a nation of some 65 million people that relies
on atomic energy for about three quarters of its power.
The European benchmark price for power next year, known as
German Cal '17, has jumped 9 percent since early
Wednesday. At just under 30 euros per megawatt hour, it is 40
percent above its 2016 low touched in February.
"While the French news is still nebulous, it provides a
playground for traders that could go on for quite a while," said
a trader at a German utility. "It's our job to exploit the new
volatility and great to see the markets coming back to life."
Prior to this week's move, wholesale power prices have
declined more or less continuously since 2011 due to competition
from renewable energy, a global supply glut of coal, gas and
oil, as well as sluggish demand, all of which have hit large
French utility EDF said on Wednesday it would carry
out more tests on 12 nuclear plants during planned outages this
winter to check for high carbon concentrations in steam
generator channel heads, which could weaken the ability of steel
to prevent cracks spreading.
EDF, which has already lowered its nuclear output target for
2016 as a result of the outages, said the carbon tests could
prolong the time the reactors are offline.
A power trader said if there were a severe cold spell this
winter - such as five to 10 degrees Celsius below normal
temperatures - the French system could struggle to meet peak
demand as so many coal plants have closed in recent years.
Supply from neighbouring markets, such as Switzerland and
Belgium, was also likely to be tight, the trader said.
Supply gaps in France could be made up by Germany, the
biggest continental producer, but there are fears that demand
elsewhere will go unmet if France takes priority.
"This is just an eventuality but it causes a highly nervous
environment," another trader said. "Speculators love it."
France and Germany account for two thirds of western
Europe's power consumption. The region is eventually meant to
become a unified energy market and more interconnectors and
cross-border contracts are emerging.
The price of coal, which still accounts for a large share of
German power generation, also clocked up big gains on Thursday.
The cost of European Union carbon permits, which power producers
buy to offset emissions, also increased.
Traders said there was a global coal price recovery in
general, however, while a virtuous circle of different energy
markets pushing each other higher was also a factor.
Higher oil prices supported power prices too on Thursday
after a surprise move by producer cartel OPEC to curb the output
of crude, which is often described as the energy sector's "lead
The power price rallies extended to other regional markets,
such as Britain and the Czech Republic. As of 0930 GMT, UK
day-ahead baseload power had surged 29 percent to
46.75 pounds/MWh with traders citing the impact of European
However, some cautioned that there was a certain amount of
hype surrounding the French nuclear outage news and the gains
may not be sustainable without some confirmation that supply
will definitely be hit.
"It has not changed the fundamentals of generous supply," a
BayernLB bank analyst said. "It is driven by quick trader
(Additional reporting by Nina Chestney in London and Bate Felix
in Paris; editing by David Clarke)