SMP level rising, wholesale market structure changing

Day-ahead market prices in Greece have risen and competition between lignite and gas-fired power stations has intensified amid the unusually hot weather conditions around Europe, pressuring markets to adjust.

Over the past week, prices in the day-ahead market, the main arena for trading power, have ranged between 62 and 66 euros per MWh.

An increase in the cost of CO2 emission rights, which rose to levels over 18 euros per ton level last week for the first time in seven years, has impacted day-ahead market prices.

The unusually hot weather in Europe’s north has led to an increase in the demand for CO2 emission rights following the necessary weather-related withdrawal of nuclear power stations from grids.

The System Marginal Price (SMP) rose to 64.422 euros per MWh in July, roughly 3.8 euros higher than a month earlier. CO2 emission rights were at 16 euros per ton in July and 14 euros per ton in June.

SMP levels have climbed steadily since the beginning of the year, registering an increase of over 50 percent since March, when the SMP was at 44.28 euros per MWh.

As a result of the SMP increase, wholesale electricity prices in the Greek market have been shaped by lignite-fired power stations rather than gas-fired facilities for many hours in the day, even during peak demand, data has shown.

The lignite-fired power stations Agios Dimitrios IV, Megalopoli III, Kardia II and Amynteo I all shaped Greece’s SMP levels for a significant number of hours last week.

Megalopoli IV and Meliti, two of the main units included in PPC’s bailout-required disinvestment of lignite units, remain among the most competitive units capable of withstanding the pressure of competition even amid conditions of heightened CO2 emission right prices at levels of 18 euros per ton.

Prospective bidders of the PPC lignite units will certainly take this into consideration and follow the electricity market developments closely until October, when they will be expected to submit binding bids for the power utility units. The investment risks prompted by heightened CO2 emission right prices in Europe will also play a crucial role in the decisions of investors.