New UK power link may feed Europe, not import

Mar 27, 2011 - Karolin Schaps - uk.mobil.reuters.com

LONDON (Reuters) - A new cable linking the British and Dutch electricity markets may surprise by exporting, not importing, thanks to Germany's pause on power from old reactors.

The Netherlands will need to raise power exports to help cover Germany's lost energy due to the shut down, and electricity from Britain may also travel east to Europe's top economy.

Germany said on Tuesday that it will immediately stop seven of its oldest nuclear power reactors -- with a combined capacity of just over 7,000 megawatt -- for at least three months to reassess their safety after Japan's nuclear accident raised concerns globally about nuclear safety.

When the 1,000-MW BritNed interconnector starts operating on April 1, power may flow into the Netherlands -- directly connected with the German market -- instead of coming to Britain.

"The total net exported volume from the UK will certainly rise because of the 'new nuke' situation in Germany compared to the situation we had a week ago," said Roald Noort, a European power trader at Netherlands-based energy trading house Priogen.

"This is a bit different to what I had expected one month ago."

Even though its economy ministry claims Germany will not need extra power imports during the moratorium period, switching on spare gas and coal-fired power stations may turn out to be more expensive than sourcing additional imports.

"I certainly think they are not forced to import it, but it may be more economic," the power trader said.

Traders on the Dutch side say they expect the Netherlands to export power to Germany next month.

The Dutch April baseload power contract rose nearly 10 euro after Tuesday's announcement, showing the Netherlands expects to have less supply for its domestic market.

The start of the 260-km BritNed cable comes at a convenient time for western Europe's power market as extra transport capacity means more power can flow from Britain to cover extra demand from Germany.

"I struggle to see why the UK should receive too much power through BritNed with Germany taking a chunk of its nukes offline," said one UK power trader.

Higher demand for British power in neighbouring markets will mean that supply for the domestic market falls also in Britain, painting a bullish picture for British power prices.

On Thursday, the spread between April baseload power in Britain and the Netherlands stood at a UK premium, but the spread has been tightening over the past days, narrowing to around 2 pounds per megawatt-hour from nearly 7 pounds seen around one month ago.

"The UK premium over the Netherlands has narrowed significantly this week, and the incentive to ship power from the Netherlands to the UK has diminished. But we will need to see further appreciation in Dutch power prices for exports from the UK to happen for the period of April 2011," one power market analyst at an investment bank said.

High wind power production in Germany and the Netherlands and different consumption patterns had led market experts to believe the cable would mostly import power from the Netherlands to Britain.

But the loss of nuclear capacity in Germany may now result in a reverse flow which would see Britain export power to the Netherlands from where it can flow on to Germany.

Another factor that may result in higher British power exports via the BritNed cable is maintenance on the other power link between Britain and continental Europe.

The 2,000-MW UK-France interconnector has been reduced to half its capacity since March 14 while valve replacement work at both ends of the sub-sea cable is ongoing.

Capacity will remain at 1,000 MW until May 11, which will increase the need for power exports via the BritNed cable if Germany seeks higher imports.