13.02.2017 | The collapse of electricity prices: Commodity prices are to blame

Coal is the culprit

The enormous growth in renewable energies is not the main reason for the rock-bottom European power prices in recent years. In fact, an Axpo analysis indicates that  low commodity prices are to blame.

This clear statement was made by Executive Board Member and the Head of T&S, Domenico De Luca, at E-world in Essen in an interview with the Germany energy magazine „Energie&Managment". Below the report published with the kind permission of the magazine.

Over the past years, Axpo conducted an in-depth analysis of power price development, says Domenico De Luca. To 80 per cent, oil and coal prices are responsible for the collapse of wholesale prices on the power market. Renewable energies hardly had an impact on the analysis. The results were a surprise for Axpo: „A great deal hinges on the commodity price."

De Luca anticipates that global commodity prices – primarily for coal, as well as oil – will continue to have a significant impact on wholesale power prices. „That’s our assessment." The demand for power plant coal in China will be a decisive factor. In addition, Axpo is watching demand development in India with keen interest. Nevertheless, the importance of renewable energies as a determinant of power prices has grown, he says, although, the impacts are not as strong as often claimed. 

The price of electricity is also heavily dependent on the price of coal
No easy business

In recent years, trading has not been an easy business for Axpo, according to De Luca. Prices have dropped strongly and many companies have scaled down their trading activities. On the other hand, he sees new opportunities owing to the increasing volatility of power generation. Profitably offsetting price fluctuations requires professional know-how, which Axpo Trading can offer with its 750 employees. „Trading will become more important." Many other money-makers such as the power plant business have declined considerably. In contrast, trading can generate good margins with the appropriate strategy. 

Axpo Deutschland heading in the right direction

In Germany, Axpo continues to concentrate of the marketing of electricity and gas, says Carsten Münch, Managing Director of Axpo Deutschland GmbH. He sees additional opportunities, particularly in the gas sector. The company sells some 5 billion kWh of gas per year. The number is likely to double. This will be primarily achieved by means of portfolio effects and good service. „Every customer is different." By offering a good price, the corresponding contracts, as well as aspects such as the terms of payment or invoicing, the Germany subsidiary with nearly 30 employees wants to continue its success.

The company currently distributes over 10 billion kWh of electricity per year in Germany. According to Münch, the company is pleased with the results, but will continue to seize the opportunities offered on the market.

In conversation with Energie & Managment chief editor Stefan Sagmeister: Domenico de Luca and Carsten Münch

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