Average Swiss day-ahead base load prices are on track to settle at discount over the German-Austrian market in May
But snowmelt, which has supported inflows to Swiss reservoirs and rivers, is now showing signs of slowing, while nuclear availability is scheduled to fall in June and the third quarter compared with January-May as plants come off line for scheduled maintenance and refuelling.
The Swiss base-load day-ahead settlement has averaged €31.45/MWh on 1-26 May on the Paris-based Epex Spot exchange, which compared with an average Epex Spot settlement at €31.77/MWh so far this month in the German Austrian auction. This puts the Swiss day-ahead market on track to settle below the German-Austrian bidding zone settlement for the first time since May 2015.
Recovering hydro stocks and a near 100pc nuclear availability allowed Switzerland to switch to a net export position to Germany this month for the first time for any month since June 2016. Commercial net exports from Switzerland to Germany and Austria have averaged 1.1GW so far this month, from 1-24 May, according to data from European transmission system operators' association Entso-e.
Above-average snow fall in the 2017-18 winter season and the onset of the snow melt season last month have propped up Swiss hydro stocks. Reservoir levels at the start of this week stood at 23.4 percentage points of installed capacity, an 8.6 percentage point surplus to the same week a year earlier and 4.3 percentage points above the 10-year average, data from energy ministry Bfe show. The 1,245MW Leibstadt nuclear plant has been running below maximum capacity with a curtailment of 170MW but there have been no complete stoppages at any of Switzerland's five nuclear units with a combined capacity of 3.3GW so far this quarter. The country's 365MW Beznau returned to service on 19 March after a prolonged outage which began in 2015, with the high nuclear availability further bolstering the Swiss supply side and facilitating its net exports to the German-Austrian market area.
While the ample supply situation has been a key driver of the Swiss day-ahead market discount over the German-Austrian auction so far this month, the latter's dependence on power sector coal burn has also contributed.
Daily average combined output from hydro, biomass, wind and solar power installations stood at 0.67TWh on 1-24 May, slightly below 0.69TWh in April and a decade high of 0.73TWh reached in January this year, according to data from German research institute Fraunhofer ISE. But with demand in May much lower than in the winter months, renewable power output contributed to conventional power generation falling to a daily average of just 0.68TWh, the lowest level on record so far this decade.
Amid fairly steady output from nuclear and lignite-fired power plants, average daily coal-fired generation stood at 0.14TWh on 1-24 May, marking the lowest for any month so far this decade. But marginal, price-setting generation in Germany remained in the hands of efficient coal-fired plants at least in some hours this month, especially in the evening hours when there is no solar power generation. The off-peak 2 block in the German-Austrian day-ahead auction on the Epex Spot exchange, comprising hours 20-24, averaged €37.59/MWh on 1-26 May, which compared with average marginal costs for efficient 46pc coal-fired units at €34.33/MWh and at parity with marginal break-even costs for 42pc efficient units, based on Argus assessments for API 2 coal and EU ETS carbon allowances prompt prices. Older coal-fired units might have run on the basis of hedged concluded at more attractive clean dark spreads in the forward market but the correlation between marginal costs for coal units and the German-Austrian evening day-ahead prices and the lack thereof in the Swiss market are likely to have contributed to the Swiss discount. Swiss off peak 2 prices settled at an average of €36.81/MWh with the €0.78/MWh discount over the German-Austrian block wider than the base-load discount at €0.32/MWh.
Switzerland could return to a premium position over Germany for the rest of the summer, based on forward price signals. The Swiss June contract today closed at €39.30/Mwh for base-load delivery which compared with the German close at €38.80/MWh. And the Swiss third quarter 2018 contract closed at €42.90/MWh, at a €0.70/MWh premium over Germany.
Snow depth in the Swiss Alps has been falling rapidly with the onset of snowmelt season and is now below the long-term average for this time of year in Klosters, in the canton of Graubunden where around 22pc of the country's reservoirs are located. In the hydro-rich canton of Valais, snow depth remains above the long-term average for this time year but has fallen sharply in recent weeks with above-average temperatures forecast for the region next week likely to accelerate snow melt.