* Poland to couple market with NordPool
* Czech Republic prices show market links with Germany
* The two may help unite Europe's markets in long run
By Henning Gloystein and Michael Kahn
LONDON/PRAGUE, Nov 24 (Reuters) - Czech and Polish power
prices show that their markets are becoming increasingly linked
with the rest of the continent, but central Europe's two biggest
energy markets are choosing different integration strategies.
They have a choice of two core regional groups being formed
by Europe's power markets. France, Belgium, Netherlands,
Luxembourg and Germany have joined in the western European bloc
known as CWE (Central West European), while Nordic countries
Denmark, Finland, Norway and Sweden have come together in the
hub known as NordPool.
Within these groups, electricity flows freely between
different countries via interconnectors, levelling out supply
imbalances and equalising prices.
Poland has opted to join with NordPool from Dec. 1,
[].
The Czech Republic has made no official move toward market
coupling, but recent power price developments and regulatory
moves show it is increasingly integrating its market with
Germany's.
"The correlated price development between Germany and the
already coupled Czech and Slovak markets indicates that the
Czech/German border is a prime candidate for a market coupling,"
said Michal Skalka, head of trading at Czech utility CEZ
<>.
"That would mean the Czech/Slovak price zone would join the
CWE coupling zone. This step would be certainly welcomed by the
market players and would help liquidity," he added.
Czech, German, French and Dutch forward power prices are now
over 90 percent correlated, while the price for Polish forward
electricity products is now linked by over 75 percent to that of
the NordPool market.
In addition, the two regional groups are in the process of
linking to each other through Denmark and Germany, creating the
possibility that they can exchange power as needed.
For now, however, the correlation between German, NordPool,
and Polish power prices remains low.
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For a European power price correlation graph, click here:
http://graphics.thomsonreuters.com/gfx1/HG_20101811140446.jpg
For a European power price correlation graph, click here:
http://graphics.thomsonreuters.com/gfx1/HG_20101811140654.jpg
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RENEWABLE PRESSURES
While the Nordic markets are largely run by hydro generation
and driven by extremely cyclical summer/winter weather
differentials, western Europe is marked by high nuclear and
fossil power generation and much milder weather conditions.
Through linking up with NordPool, Poland will get increasing
access to its vast hydro capacities.
The Czech Republic, through its proximity with Germany and
Austria, will gain access to Alpine hydro and Franco/German
nuclear and fossil fuel capacities.
What all market groupings have in common is that a large
amount of renewable power capacity will be added to grids across
the continent in the coming years.
Both for markets and regulators, these additions create the
need for further market integration in Europe. Energy sources
that depend on weather conditions, such as wind power and solar
power, are unreliable in isolation but can balance each other
out in combination.
The European Union plans ultimately to bind together the
power networks of all 27 EU countries to boost distribution of
renewable energy and help countries cope in the event of an
energy crisis. []
In the nearer term, with the completion of the Czech and
Polish links, Europe's two biggest power groups would span from
the French Atlantic coast to the borders of Ukraine and from the
Scandinavian North Cape down to the Alps.
Over the long run, these links could help open up new routes
for the transport of power to the south. Key arbitrage hubs
could be added in central Europe, or arbitrage could even shift
eastward entirely.
"When and if this happens, it would open up really
interesting alternative routes to ship Nordic power to the
south, where there is a chronic shortage of supplies, and it
would increase security of supply by offering power supply
routes even during times when western Europe has its own
shortages," one German arbitrage trader said.
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Click here for a map: http://r.reuters.com/suc46q
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(Editing by Jane Baird)
