Europe Faces Warm, Windy January With Rain Battering Britain

Jan 08, 2014 12:03 pm ET

(Updates prices in fourth and fifth paragraphs.)

Jan. 8 (Bloomberg) -- Europe will probably be warmer and windier than average this month, potentially cutting wholesale electricity prices as lower heating demand combines with forecasts for increasing power generation.

Five out of six meteorologists expect temperatures in January to be higher than normal, according to a survey by Bloomberg News. A low-pressure system will result in windy conditions across northwest Europe and above-average rainfall in the U.K., Germany and France, Byron Drew, lead forecaster at MetraWeather in Reading, England, said yesterday by e-mail.

“The current warm weather is unusual,” Frank Woskowski, a power trader at AVU AG fuer Versorgungsunternehmen, a municipal utility, said yesterday by phone from Gevelsberg, Germany. “Even a cold spell won’t lead to higher prices as the market should have covered for that already.”

Forecasts for a warm January may extend declines in power and gas prices driven by above-average temperatures that reduced demand in December. Stormy weather also boosted wind power generation to records in Germany and the U.K. in the past five weeks, according to grid operator data compiled by Bloomberg.

February power for delivery in Germany, Europe’s biggest market, will probably fall as much as 6.8 percent to 41 euros ($56) a megawatt-hour from when it first traded in October, Woskowski said. The contract traded at 42.20 euros a megawatt- hour at 5:44 p.m. Berlin time, according to broker data compiled by Bloomberg.

Reduced Demand

The U.K.’s February power contract fell to a record 51.90 pounds ($85) a megawatt-hour yesterday after dropping 6.5 percent in the past month. The contract rose 0.6 percent to 52.20 pounds today, broker data show. U.K. February natural gas fell 3.3 percent over the past month to 68.65 pence per therm ($11.30 per million British thermal units) on ICE Futures Europe in London.

German temperatures have averaged about 5 degrees Celsius (9 degrees Fahrenheit) higher than the seasonal norm of minus 0.5 degrees so far in January, according to the nation’s forecaster Deutscher Wetterdienst. This follows a December average of 2.7 degrees Celsius above the norm, based on the 1961-90 reference period, DWD data show.

December temperatures across northwest Europe and the U.K. averaged 1.2 degrees Celsius above the seasonal norm, according to MetraWeather data compiled by Bloomberg.

Gas demand in the U.K., Europe’s biggest market, was 17 percent below the seasonal norm of 311 million cubic meters a day in December, according to National Grid data.

German Gasoil

Household gasoil inventories in Germany, the continent’s largest market for heating oil, rose to 62 percent full in November from 60 percent a year earlier, according to data from research company Ipsos Loyalty GmbH. Gasoil futures for January delivery slid more than 4 percent since Dec. 27 and traded at $914.50 a metric ton on ICE Futures Europe today.

Next week may bring the coldest weather of January, Andreas Friedrich, meteorologist at DWD, said Jan. 6 by phone from Offenbach, near Frankfurt. Aggregated temperatures in northwest Europe and the U.K. are forecast to average 1.4 degrees Celsius next week, 1.9 degrees below the norm, according to MetraWeather data on Bloomberg, using the GFS model at 5:38 p.m. Berlin time today.

There is a 30 percent chance that temperatures in central Europe could drop to as low as 5 degrees Celsius below the norm next week, Andreas Gassner, meteorologist at MMInternational, said by e-mail Jan. 7 from Appenzell, Switzerland.

Rising Generation

Generation capacity at German fossil-fuel, nuclear and hydroelectric plants is set to rise 5.8 percent to 64,026 megawatts on Feb. 7 from 60,520 megawatts today, according to European Energy Exchange AG data. “Demand is ramping up now after the holiday season and we are switching back on more generation,” Manfred Lang, spokesman at Germany’s second- largest utility, RWE AG, said by phone today from Essen.

Output from German wind farms over the next 15 days is forecast to peak at 21,626 megawatts tomorrow, according to Bloomberg’s weather model.

Stormy weather lifted German wind generation to a record of 26,269 megawatts on Dec. 5, EEX data on Bloomberg show. Output from U.K. wind farms hit a new high of 6,188 megawatts on Jan. 6, according to National Grid data. A thousand megawatts of electricity can power around 2 million European homes.

--With assistance from Lananh Nguyen in London. Editors: James Herron, Alaric Nightingale