The UK wholesale electricity market will soon switch to trading traditional calendar-dated contracts which means there could be a “fairly choppy trading” ahead of November.
In the latest weekly market update, Sammy Blay, Client Portfolio Manager at npower’s Optimisation desk said the industry will go through a major change as it will ditch the Electricity Forward Agreement (EFA) calendar.
The EFA calendar splits the year into four and five-week monthly blocks, with each quarter made up of blocks of 4-4-5 weeks. In order to align it more closely with European power and gas markets, the market intends to switch to using a standard Gregorian calendar for forward contracts.
Mr Blay explains: “For longer-dated contracts, especially for power, we expect fairly choppy trading ahead of November as there is going to be a key industry change moving from the EFA calendar to the Gregorian calendar. This is an initiative to help improve the liquidity in the UK power market by tying it more closely to the more liquid gas market as well as aligning it with continental power and gas counterparts.”
He adds: “We also this week expect a backlog of US economic data to be released so we expect a lot of volatility in the wider financial market which should mean prices will be fairly choppy.”
Coal prices made a “mild recovery” last week as it had hit four-year lows the previous week as they attracted “bargain hunters”, Mr Blay said. For carbon, German Chancellor Angela Merkel made comments in support of the EU backloading plans and progress in the German Government coalition talks helped lift coal back above €5 (£4.3) per tonne.