(Bloomberg) -- French electricity for next year is trading below its real value as the market hasn’t yet priced in higher future demand and stronger exports, according to BNP Paribas SA.
The contracts should be as much as 10% higher than where they are currently trading, the bank’s Senior Commodities Desk Strategist James Huckstepp wrote in a report on Tuesday. The equivalent comparison for Germany, the region’s biggest market, is just over 1%.
The bank expects that demand will finally start to increase again after the energy crisis curbed industrial use. By next month, technical issues that have hampered exports to Belgium, Germany and Switzerland since late July are also expected to be solved. Similar limitations this spring led to record spreads between France’s day-ahead contract and its neighbors.
Power prices in Europe remain at high levels historically, but the strong growth in renewables has helped keep a lid on rates at times. As the colder weather sets in, an increase in gas-fired generation is likely to prop up short-term contracts.
The bank expects that the surge in renewables will continue to outpace the overall demand recovery for the next few years. By 2026, the increased electrification of the European economy is set to end that trend and drive demand higher.
Power for delivery in Germany next year rose for a second day this week, advancing 0.7% to €84.88 per megawatt-hour on the European Energy Exchange AG. The French equivalent rose 1.7% to €69.50 per megawatt-hour.
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