9M 2016 Notes on energy and environmental markets › a2a › allegati... · 2017-01-13 · • Thermoelectric production in Q3 decreased by 5.9% as a result of the decrease in July

NOTES ON ENERGY AND ENVIRONMENTAL MARKETSAT 30 09 2016

OVERVIEW OF ITALY AND BORDERING COUNTRIES

November 2016

2This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.

• In the first nine months of 2016 (9M 2016) there was a -3.1% decrease in Italian electricity demand.

• Hydroelectric production decreased by -6.3%, particularly focused in September (-13.2%). A decrease in solar productionwas recorded as well (-10%).

• Thermoelectric production in Q3 decreased by 5.9% as a result of the decrease in July and August 2016 (-15.1%, -8.6%respectively) related to the very hot temperatures recorded in Summer 2015 and of the increase in September 2016 (+7.7%) dueto lower net imports.

• Decrease in the import-export balance (-9.9%) in Q3 2016. In September, net imports fell by 14.4%, due to the Frenchnuclear plants maintenance.

• Slump in PUN prices (-13.8 €/MWh y-o-y in 9M 2016) due to the fall in gas prices and to the weak demand.

• In Q316 CCGTs saw a strong decrease in the number of hours in which they are the marginal technology, while Coal

plants saw an increase: this is due to the narrowing costs between the two technologies.

• In Q316 the CSS increase trend halted (on a year-on-year basis) only due to the extraordinary conditions in July 2015:

afterwards, in August and September, new increases were registered.

• The correlation between PSV and PUN is steady (CCGTs are still marginal plants in the Italian market), while the correlation

between PUN and Brent is low due to fewer gas supplies linked to oil formulas.

• Temperatures in Q316 in Italy were lower than in Q315 and in line with the 10YR average. The month of July was colderthen last year, but broadly in line with the 10YR average.

• The persistent oversupply on the carbon market continued to weigh on carbon prices. Prices fell to a three-year minimum

at the beginning of September. Prices rebounded later, mainly driven by the bullish sentiment on the power markets and by in the

increase in thermal production.

SUMMARY – Q3 2016POWER AND ENVIRONMENTAL MARKETS


• Growing gas demand in Q316 (+1.8% year-on-year), +1.5% in the first nine months of the year (9M 2016 vs. 9M 2015).

• Increasing LNG imports into Italy (+40.5% in Q316 on a year-on-year basis), with around +0.4 bcm through Livorno OLT.

• Improving industrial gas demand (+3.9% in Q316 vs. Q315, +2.9% in the first nine months of 2016 vs. 2015).

• Decreasing thermal gas consumption during Q316 (on a year-on-year basis) mainly due to the exceptional hot temperatures in2015. Significant increase in thermal gas consumption in the first nine months of the year (+5.2% on a year-on-yearbasis).

• Strong gas price decline in Q316 vs. Q315 on the PSV (about -34%). Spreads with the Austrian VTP, TTF and Peg Nord (Q316vs. Q315) decreased as well.

• Rising LNG global supply, mainly due to the rise in Australian exports. Rising exports from the US liquefaction plants as well,but few US cargoes coming into Europe by now.

• Strong demand for LNG in Asia in 9M 2016 (China and India in particular). Strong summer demand coming from theMiddle Eastern countries as well (UAE, Kuwait). Surging LNG imports into Egypt.

SUMMARY – Q3 2016GAS MARKETS

4This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent. 4

CONTENTS

Gas Market

Supply & Demand

Spot Markets

02

Cross-

commodities

03

Environmental

Markets: EUA

04

Power Market

Supply & Demand

Spot Markets

01


Source: Terna - Monthly Report on the Electricity System.

• In the first 9 months 2016 there was a -3.1% decrease in electricity demand (-5% in Q3).

• Hydroelectric production decreased by -6.3% in the first 9 months and by 1.2% in Q3: inSeptember, in particular, the fall was -13.2%. In the firs 9 months, a decrease in solar production wasrecorded too (-10%), while there was an increase in wind production (+13.2%).

• Thermoelectric production in Q3 decreased by 5.9%: this is the result of the decrease in July (-15.1%,due to the hot July 2015) and in August (-8.6%) - due to the hot summer 2015 - and the increase inSeptember (+7.7%), due to the fall in net imports.

• Decrease in the import-export balance (-9.9%) in Q3. In September, the net imports fell by 14.4%, dueto the French nuclear plants maintenance.

ITALIAN ELECTRICITY SUPPLY – BREAKDOWN BY SOURCEIN Q3 REDUCTION IN THERMAL PRODUCTION IN JULY AND AUGUST, INCREASEIN SEPTEMBER; FALL IN NET IMPORTS


After a stable thermal production in H1, in Q3thermal production declined (mainly in Julyand August, while it increased in September).

Stable new renewables production, due to thefall in FV production and the increase in windproduction.

Hydro production at a low level (the lowest since2012): in Q3, there was a y/y increase in Julyand August, a fall in September.

-3.1% year-on-year decrease in the Italian powerdemand - despite the economic recovery. Thedecrease was particularly strong in July (-9.7%), dueto the temperatures (lower than in 2015).

Source: Terna - Monthly Report on the Electricity System.

ITALIAN ELECTRICITY DEMAND AND SUPPLY – HISTORICALTRENDS

-3.1% DECREASE IN DEMAND

32 42 47 36 34

2529 30

33 32

160 135 123 133 130

30 30 31 33 32

-

50

100

150

200

250

300

2012 2013 2014 2015 2016

TWh

Italian Power Production (9 months)

Foreign Balance

Thermal

Solar+Wind

Hydro

248239 233 238 230

85 81 78 84 79

0

50

100

150

200

250

300

2012 2013 2014 2015 2016

TWh

Italian Power Demand

9 months

Q3


• The first 9 months registered a slump in PUN prices, due to the fall in gas prices and to the weak demand. July

was the month with the highest decrease in prices y/y (-24.9 €/MWh for the baseload, due to the hot weather

in 2015). This trend weakened in September (-6.5 €/MWh) and reversed in October (+5.4 €/MWh, due to the

high prices in France).

• Peakload prices decreased more than baseload prices, bringing down the BL-PL spread.

Source: Gestore Mercato Elettrico (GME)

ITALIAN ELECTRICITY SPOT PRICESSTRONG PUN DECREASE y/y (but reversal in October); REDUCTION INPL-BL SPREAD


• In Q3 CCGTs saw a strong decrease in the number of hours in which they are the marginal technology, while Coal plants sawan increase: this is due to the narrowing costs between the two technologies, as showed in the marginal prices table.

• Marginal prices are strongly lower than last year for all the technologies, and in particular for the CCGTs, due to the slump ingas prices. Hydro plants marginal prices are still the highest (apart from oil), but with a significant reduction compared to2015. Coal plants marginal prices decrease is weaker than for other technologies, due to the increasing coal prices.

Source: MPF (on GME data). The data are calculated as weighted averages for the six zones (North, South, CSouth, CNorth, Sardinia, Sicily)

ITALIAN ELECTRICITY SPOT PRICES: MARGINAL TECHNOLOGYON MGPCCGTs STILL THE MAIN MARGINAL TECHNOLOGY, BUT IN A LOWER NUMBER OFHOURS; NARROWING CCGT AND COAL PLANTS MARGINAL PRICES


• After the 2014 peak in the number of 0-price hours, the number has decreased steadily.

• No 0-price hour was registered in 2016, despite the slump in prices.

ITALIAN ELECTRICITY MARKET: ZONAL HOURS AT ZERO PRICENO 0-PRICE HOUR


• In Q316 the CSS year-on-year increase trend halted only due tothe extraordinary conditions in July 2015: in August andSeptember new increases were registered (even stronger inOctober). Indeed, during the last weeks high power prices weresustained by the French prices, more than by the fuel costs.

• On the contrary, the increasing trend in coal prices has led to afall in CDS y/y.

Clean Spark Spread: PUN (BL/PL) – gas PSV cost (eff. 51%) – EUA cost – CV cost (up to 2014)- variable transport costsClean Dark Spread PUN BL –coal cost (API2 + spread MED + variable transport costs - eff. 35%) – EUA cost – CV cost (up to 2014)

ITALIAN ELECTRICITY CLEAN SPARK AND DARK SPREADS (CSSAND CDS)IMPROVEMENT IN CSS DUE TO LOW GAS PRICES, DECREASE IN CDS


News on French and Swiss nuclear production2015: AREVA informs ASN (Autorité de sûreté nucléaire) of the discovery of technological anomalies in some of the Flamanville plant’s components(pressure vessel). This plant is under construction and the anomaly is due to the carbon segregation phenomenon in the pressure vessel steel producedby Creusot Forge.

April 2016: AREVA informs of anomalies due to the carbon segregation phenomenon also on 400 parts produced by Creusot Force since 1965 and used byactive nuclear plants.

June 2016: ASN asks EDF to control 18 French nuclear reactors virtually affected by the carbon segregation phenomenon (17.45 GW, 27.6% of Frenchnuclear capacity: Blayais 1, Bugey 4, Chinon 1 - 2, Civaux 1 - 2, Dampierre 2 - 3 - 4, Fessenheim 1, Gravelines 2 - 4, Saint-Laurent 1 - 2, Tricastin 1 – 2- 3 - 4).

July 2016: EDF revises 2016 nuclear production from 408-412 to 395-400 TWh and extends the summer outages of 4 plants.Due to the controls and to other technical reasons in September the plants Bugey 5, Cattenom 3, Fessenheim 1, 2, Gravelines 5, Paluel 2, Tricastin 1,Tricastin 3 are subjet to extraodinary outages (7 GW).

End of September: new EDF controls on 12 plants for up to 3 months (Bugey4, Civaux1, Dampierre3, Fessenheim1 - 2, Gravelines 2 - 4, St Laurent1,Tricastin1,2,3,4 , for 11.3 GW). EDF revises 2016 nuclear production to 380-390 TWh. Further extension of the «statutory outages» until March on severalplants.

October the 6th: the Leibstad Swiss nuclear plants (1.2 GW) restart is postponed to February 2017 (from December 2016 ).

October the 18th: The ASN provides a list of 5 additional reactors to be tested within the next three months (Fessenheim-1, Gravelines-4, Civaux-1,Tricastin-2 - 4 for 5.1 GW)

October the 20th: further extension of the outages of two plants to mid November (1.8 GW). Publication of the outages for the 5 plants mentioned in theprevious point, with effects from December to January.

October the 26th: the ASN warns the controls will last for at least one more year.

November the 4th: EDF postpones the restart of five of its nuclear reactors until the end of the year (4.5 GW)

THE SITUATION ON THE FRENCH MARKET

THE STORY...


EFFECTS of FRENCH POWER MARKET on ITALIAN PRICES

STRONG REDUCTION IN NET IMPORTS FROM FRANCE; ITALIAN PRICES LOWERTHAN THE FRENCH ONES

Vo

lum

es

Pric

es

• In September, net imports from France (and from Switzerland) began to reduce, due to the fallin French nuclear production

• As a consequence, in October Italian power prices were lower than in France.


CONTENTS

Gas Market

Supply & Demand

Spot Markets

02

Cross-

commodities

03

Environmental

Markets: EUA

04

Power Market

Supply & Demand

Spot Markets

01


Source: Bloomberg, Snam Rete Gas, PCS correction by Snam Rete Gas during 2016, data corrections by Snam Rete Gas

• +1.8% in gas demand during Q316 (year-on-year basis), +1.5% in the first nine months of the year.

• Increase in LNG imports (+40.5% in Q316 on a year-on-year basis), with around 0.4 bcm through OLT.

• Strong imports from Algeria, compensated by fewer imports through Tarvisio and Gela (year-on-year basis).

ITALIAN GAS SUPPLY – BREAKDOWN BY SOURCESSTRONG ALGERIAN FLOWS, LNG IMPORTS RISING IN Q316

Q3 2016 Q3 2015∆%

Q316/Q3159M 2016 9M 2015

∆%

9M16/9M15

4.511 1.759 156,5% 13.212 5.387 145,3%

1.139 1.814 -37,2% 3.540 5.622 -37,0%

5.792 8.044 -28,0% 20.154 22.505 -10,4%

- 16 - - 17 -

2.629 2.517 4,5% 5.248 7.106 -26,1%

14.071 14.149 -0,6% 42.154 40.636 3,7%

1.444 1.350 6,9% 4.479 4.351 2,9%

83 3 - 175 26 -

375 - - 481 31 -

1.902 1.354 40,5% 5.136 4.408 16,5%

15.973 15.503 3,0% 47.290 45.044 5,0%

1.330 1.603 -17,0% 4.104 4.859 -15,5%

5.071- 5.095- -0,5% 3.424- 2.613- 31,0%

12.233 12.011 1,8% 47.970 47.258 1,5%Demand

Panigaglia

Livorno (OLT)

Total LNG

Total Import

Domestic Production

Delta Stock

mcm

Import

Mazara del Vallo (Algeria)

Gela (Libia)

Tarvisio (Austria)

Gorizia (Slovenia)

Passo Gries (Svizzera)

Total Pipeline

Rovigo (Cavarziere)


Italy: Gas consumption

Industry ThermalDistribution

Network

Other

networksTotal

2015 Q1 3.519 5.113 14.403 595 23.630

Q2 3.104 4.074 4.097 335 11.610

Q3 2.896 5.983 2.783 344 12.007

Q4 3.237 5.533 10.096 817 19.683

9M-15 9.519 15.170 21.283 1.274 47.247

2016 Q1 3.501 5.632 13.680 771 23.584

Q2 3.283 4.475 4.187 199 12.145

Q3 3.009 5.851 2.990 278 12.129

Q4 - - - - -

9M-16 9.793 15.959 20.857 1.248 47.857

113 132- 207 66- 122

274 789 426- 26- 610

mcm

Q3-16 vs. Q3-15

9M-16 vs. 9M-15

• Q316 showing a slight rise in natural gas consumption, on a year-on-year basis

• Industrial gas demand showing improvements (+3.9% in Q316 vs. Q315, +2.9% in the first nine months of2016 vs. 2015)

• Decreasing thermal gas consumption during Q316 (on a year-on-year basis) mainly due to the exceptionalhot temperatures in 2015. Significant increase in thermal gas consumption in the first nine months of theyear (+5.2% on a year-on-year basis)

Source: Bloomberg, Snam Rete Gas, PCS correction by Snam Rete Gas during 2016, data corrections by Snam Rete Gas

ITALIAN GAS CONSUMPTIONGROWING DEMAND IN Q3-16, +1.0% YOY


PSV PSV-TTF PSV-VTPPSV-PEG

NORD

Q1 27,1 1,0- 0,3 1,8-

Q2 28,4 1,2 0,9 0,5

Q3 27,7 1,8 0,8 1,2

Q4 28,5 1,7 1,1 1,2

Year 27,9 0,9 0,8 0,3

Q1 25,5 1,2 0,5 1,1

Q2 20,8 1,9 0,6 1,2

Q3 20,5 2,4 0,8 1,7

Q4 25,7 3,6 1,7 3,2

Year 23,1 2,3 0,9 1,8

Q1 24,1 2,8 1,7 2,2

Q2 22,5 1,5 1,0 1,4

Q3 22,0 2,2 1,2 2,2

Q4 19,4 2,4 1,4 2,1

Year 22,0 2,2 1,3 2,0

Q1 14,5 1,6 1,1 1,3

Q2 14,7 1,6 0,9 1,5

Q3 14,5 1,8 0,5 1,5

Q4 - - - -

Year - - - -

7,5- 0,3- 0,7- 0,7-

€/MWh

Q3-16 vs. Q3-15

2013

2014

2015

2016

• Strong gas price decline in Q316 vs. Q315 on the PSV (about -34%)

• Spreads with the Austrian VTP, TTF and Peg Nord (Q316 vs. Q315) decreased as well.

Source: ICE-Endex, CEGH, Powernext

ITALIAN GAS SPOT PRICES – PSV AND MAIN HUBS SPREADPSV PRICES AND SPREADS STRONGLY DECREASED IN Q316 VS. Q315


• Rising global supply, due to the rise in Australian exports. Rising exports fromthe US liquefaction plants as well. Few US cargoes coming into Europe by now

• Strong Asian demand in the first 9 months of the year (China and India inparticular).

• France seeing more cargoes than in 2015, UK imports picking up in September2016.

• Strong summer demand from the Middle East countries (UAE, Kuwait).Surging LNG imports into Egypt.

SU

PPLY

DEM

AN

D

Source: Thomson Reuters

GLOBAL GAS OUTLOOK – LNG

GROWING AUSTRALIAN SUPPLY AND US SUPPLY, BUT FEW US CARGOES TO EUROPE


Gas Market

Supply & Demand

Spot Markets

02

Cross-

commodities

03

Environmental

Markets: EUA

04

Power Market

Supply & Demand

Spot Markets

01

CONTENTS


• Stable high correlation between PSV and PUN(CCGTs still marginal plants in the Italian market)

• Weak correlation between PUN and Brent oil• Stable PSV-Brent correlation (fewer gas

supplies linked to oil formulas but more competitionwith spot gas prices due to the oil price crash, LNGprices still linked to oil formulas)

• Stable high correlation between Coal andBrent oil

Source: GME, Thomson Reuters, Bloomberg

CORRELATION AMONG COMMODITIESCORRELATION AMONG ENERGY COMMODITIES STABLE IN Q316

PSV-PUNPSV-

BRENTPSV-COAL

PUN-

BRENTPUN-COAL

BRENT-

COAL

MAX 87% 74% 90% 63% 87% 90%

MIN 52% 0% -2% 23% 19% 56%

AVG. 2012-TODAY 73% 43% 56% 42% 59% 78%


Source: Bloomberg. Temperatures are the average temperature (usually of the high and low) that was observed between 7am and 7pm local. Precipitations include rainfalland the liquid equivalent of snow and sleet (measurement: Integer in 100th millimeters). Wind Speed is the average sustained winds which does not include wind gust.Bloomberg data (in particular, data about precipitations) are subject to ex-post adjustiments.

• Temperatures in Q316 in Italy were lower than in Q3-15 and in line with the 10YR average; Themonth of July was colder then last year, but broadly in line with the 10YR average.

• According to the latest analyses by NASA, 11 of the past 12 consecutive months dating back to October 2015have set new monthly high-temperature records (only June, according to the last updates, was the thirdwarmest June behind 2015 and 1998).

• Precipitations in Q316 were higher than last year, but lower than the 10YR average: the month of Julywas wetter then last year, but in line with the 10YR average. The month of August was drier then last year andthe 10YR average.

• Wind in Q316 was in line with Q315, but below the 10YR average.

ITALIAN TEMPERATURES, PRECIPITATIONS AND WINDHIGHER PRECIPITATIONS, LOWER TEMPERATURES IN Q316 THAN IN Q315

Temperature Precipitations WindTemp. 16 vs.

15

Prec. 16 vs.

15

Wind 16 vs.

15

Temp. 16 vs.

10-YR Avg.

Prec. 16 vs.

10-YR Avg.

Wind 16 vs.

10-YR Avg.

Q1 10-YR Average 7,7 184,6 6,7

Q2 10-YR Average 17,3 160,4 6,2

Q3 10-YR Average 22,9 132,8 6,7

9 months 10-YR

Average16,0 159,3 6,5

Q1 2015 8,0 162,8 7,1

Q2 2015 17,5 107,4 6,2

Q3 2015 23,9 110,1 5,7

9 months 2015 16,5 126,8 6,3

Q1 2016 8,4 160,1 6,7 5% -2% -6% 9% -13% 0%

Q2 2016 17,2 133,9 6,4 -2% 25% 4% 0% -17% 4%

Q3 2016 22,9 126,2 5,7 -4% 15% 0% 0% -5% -15%

9 months 2016 16,2 140,1 6,3 -2% 10% -1% 1% -12% -4%


Gas Market

Supply & Demand

Spot Markets

02

Cross-

commodities

03

Environmental

Markets: EUA

04

Power Market

Supply & Demand

Spot Markets

01

CONTENTS


• The persistent oversupply on the carbon market continued to weigh on the carbon prices. After being between 4.4 €/tonand 5 €/ton for most of the time in July and August, prices fell to a three-year minimum at the beginning of September(lowest level since the European Parliament temporary rejection of backloading in May 2013). In September, pricesrebounded (up to 6.5 €/ton at the beginning of November), mainly driven by the bullish sentiment on the power marketsand by in the increase in thermal production.

• In mid October, ITRE (EU Parliament Committee on Industry, Research and Energy) adopted its opinion on the revision ofthe EU ETS for phase 4 (2021-2030), with some light changes to the EU Commission proposal. ENVI should vote at hebeginning of December and the Parliament in February 2017.

• France decided to posticipate the introduction of the carbon floor (initially set for January 2017), with little effect on EUAprices.

Source: Reuters.

EUA MARKETOVERSUPPLY WEIGHED ON THE MARKET, BUT EUA PRICES HAVE INCREASEDSINCE SEPTEMBER


BACKUP SLIDES

MARKET ANALYSIS & PRICE FORECASTING

November 2016


Baseload (BL-PL): A Baseload Day consists of all hours from 00:00 to 23:59 Central European Time of eachcalendar dayCDS (Clean Dark Spread): It represents the margin an hypothetical coal plant with 35% efficiency can obtain onenergy markets by selling one unit of electricity, given fuel and environmental costs. Throughout our analysis CDSare computed as followsCDS = PUN BL –coal cost (API2 + spread MED + variable transport costs - eff. 35%) – EUA cost – CV cost (up to

2014)China DES: it is the Argus’ price assessment for Chinese landed LNG cargoes delivered in the ports of Guangdong,Fujian, Shanghai, Jiangsu, Dalian, Zhejiang, Tangshan, Zhuhai, TianjinCSS (Clean Spark Spread): It represents the margin that an hypothetical CCGT power plant with 51% efficiencycan obtain on energy markets by selling one unit of electricity, given fuel and environmental costs. Throughout ouranalysis CSS are computed as follows:

CSS = PUN (BL/PL) – gas PSV cost (eff. 51%) – EUA cost – CV cost (up to 2014)- variable transport costsEUA (European Union Allowances): A tradable and bankable unit under the EU ETS. Each allowance equals 1tonne of CO2.Heating degrees days: it is a proxy of the average Italian temperature during the winter season. It is related togas consumption for heating. It is calculated as follows:

HDD = Y – AVG, Y = 18 ºC, HDD = Mean, if HDD<0 then HDD=0

GLOSSARY (1)


Henry Hub: It is the main US gas hub, located in Erath, Louisiana. It serves as the official delivery location forfutures contracts on the NYMEXMarginal Technology: electricity generating technology that sets the selling price on the Italian day-aheadmarket in each hour. Data on marginal technologies are an average of zonal data taken from the marginaltechnology index (ITM) published by the GME.Peakload (PL): A Peakload Day consists of all hours from 08:00 to 19:59 Central European Time of eachweekday (i.e. Monday to Friday inclusive)PSV (Punto di Scambio Virtuale): virtual trading point for natural gas in Italy, as established by the relevantNetwork Operator and located between the entry points and the exit points of the national transportation networkwhere shippers may exchange and sell natural gasPUN (Prezzo Unico Nazionale): average of Zonal Prices in the Day-Ahead electricity Italian Market, weighted fortotal purchases and net of purchases for Pumped-Storage Units and of purchases by Neighboring Countries’ Zones.VTP (Virtual Trading Point): a notional point in Austria at which gas can be traded within the market area afterinjection and before offtake. The VTP is not a physical entry/exit point but enables grid users to transfer capacitytitles from one balancing group to another within the market area (for trading) without the need to book capacity.TTF (Title Transfer Facility): it is a virtual trading point for natural gas in the Netherlands.Peg Nord (Point d’Echange du Gaz): it is one of the virtual trading locations for the sale, purchase and exchangeof natural gas and LNG in France. It is one of the pricing and delivery points for Powernext natural gas futurescontracts.

GLOSSARY (2)

Documents

9M 2016 Notes on energy and environmental markets › a2a › allegati... · 2017-01-13 · • Thermoelectric production in Q3 decreased by 5.9% as a result of the decrease in July