A Capacity Mechanism full of surprises

Thursday 7 December was a cold shower for sales players.

Today saw a capacity auction dealing with the 2025 delivery contract (AL2025), but above all the last auction before the 2024 delivery year (AL2024), determining the reference price for the PREC spreads for the year. While this PREC was €60k/MW/year for AL2023 and AL2024 certificates were trading at around €35k/MWh, the time has come for a change. And what a change! The price of capacity has been divided by 10, at just 6.2 k€/MW for 2024…

If we had already been analysing a generally long market for several months, and had observed a very low nuclear price, we would not have assumed that this price would set the PREC.

While nuclear power was indeed put up for auction as expected at €6.3k/MW (with a volume of more than ~3.6GW), the surprise came on the buy side: the offer to buy at any price evaporated (in 2022, we had observed a demand at any price of around 12 GW, and this is now 5.9 GW, i.e. 6.1 GW less).

It is true that EdF entered the auction in a longer position than usual:

  • EdF Certified player (generation) appeared to be about ~2 GW longer than the same auction for AL 2023 in December 2022.
  • EdF Obligated player (supplier) was, according to our estimates, ~2.2 GW long

But this only partially explains the disappearance of purchase at any price (4.2 GW out of the 6.1 GW recorded) …

If the contribution from interconnections had not been reduced to ~7.4 GW (compared with a possible 8.3 GW), the auction result could even have plunged to 1.5 k€/MW for AL2024!

It is highly likely that the shortage of supply at any price is due to a change in EDF’s policy.

This hypothesis for AL2024 is all the more plausible when we look at the AL2025 auction: instead of the usual nuclear and Obligation d’achat tiers, we see a block of almost 15 GW AL2025 offered at a price following a logarithmic curve.

On the other hand, buyers seem to be waiting for prices to fall: demand in excess of 20k/MWh has fallen by ~0.2 GW since November.

Ultimately, for AL2025, the equilibrium price came to 9.4 k€/MW, a long way from the 25 k€/MW observed in November.

As the post-2026 Capacity Mechanism gets underway, this is a real turning point for this mechanism.

Between a fall in demand, the effects of which on peak consumption are still poorly modelled, a change in the positioning of the players, and a drastic fall in prices, the question could arise as to the need for this mechanism for the French system.

For the time being, however, this new balance remains under a sword of Damocles, with the availability of nuclear power playing the role of Denys’s horsehair (see our note on this subject: Fragile energy security for this winter – Haya Energy Solutions).

So it’s not all over yet: the fall in demand at any price observed for AL2024 (-6.1 GW) could be partially reflected by an increase in demand in the next AL24 auctions.

From now on, we will have to keep a close eye on how the dominant player’s new nuclear positioning strategy develops, and on the TSO’s communications.

Jean-Charles Bissié

Suscribe to our Newsletter

Each month, one of our experts publishes an article describing his view on a specific topic of the constant changes taking place in the energy market, with special focus on the French market.

Profesional Experience & Education

Diego graduated in Political Economy at King’s College University (London – 2021). He started his professional career in a family business in Madrid as an operations manager. Diego then studied a Master in Management and Master in Computer Science at IE University (Madrid – 2022), during which he participated as an Information Technology (IT) intern in a startup. In May 2023, Diego joined the HES team as an intern specialised in programming models. In his first project, he developed a software tool for modelling the unavailability of the French nuclear fleet. Afterwards, Diego has also participated in the development of new software tools for modelling price curves, generation asset performance and other topics related to the energy market. 

Diego Marroquin

Junior Consultant

Haya Energy-6

Profesional Experience

Céline joined Haya Energy Solutions in November 2021 as marketing and administration manager. She had a first professional experience in the tourism sector as a social media manager. At HES, her activities are focused on the development of the company’s visibility at European level through: commercial actions, content marketing and development of brand strategy. Céline is also involved in the management of the company’s communication: optimisation of the website (WordPress & Elementor), LinkedIn, publication of the monthly newsletter and the organisation of conferences. Céline participates in energy projects with the clients and acts as coordinator and project manager. Finally, she is in charge of administration (accounting, expenses management, invoicing).   

Education

Céline graduated in Spanish and English Philology at La Sorbonne (France – 2018) and holds a Master’s degree in Project Management and Cultural Tourism (Clermont-Ferrand/ Buenos Aires – 2021). 

Céline Haya Sauvage

Marketing Responsible

Céline Sauvage

Investment Advice

“Decarbonization of the Energy and Transport sectors is arguably today’s main economic driver for the industry.”

Profesional Experience

His career started in civil engineering as a Project Manager in France, Martinique and Australia. Afterwards, he became the General Manager of a subsidiary in Venezuela. In 1992, he established Dalkia in Germany (district heating, cogeneration, and partnerships) and represented Véolia in Thailand. In 2000, he opened the commercial office of Endesa in France to take advantage of the liberalized retail market. From 2006, as a development Manager at Endesa France, he led Endesa’s plan for Combined Cycle generation in France and developed the wind and PV portfolio of Snet at the same time. Philippe Boulanger worked for 3 years at E.ON’s headquarters coordinating the company´s activities in France. He was strongly involved in the French hydro concession renewal project. As a Senior Vice President – Project Director at Solvay Energy Services from April 2012 to February 2014 he was in charge of the H2/Power to gas and European direct market access deployment projects. Philippe has been an HES expert since 2014.

Education

Philippe Boulanger holds engineering degrees both from the Ecole Polytechnique and the Ecole Nationale des Ponts & Chaussées (France) and has a combined experience of more than 25 years in energy and infrastructure. In addition to English, Mr. Boulanger is fluent in French, German & Spanish.

Philippe Boulanger

Electricity Expert

HES-Philippe-Boulanger

“The world is changing. New investors pay particular attention to the energy sector while historical actors adapt their position to the market.”

Profesional Experience

Antonio started his career in the electricity sector in 1991 working as a member of the General Manager’s team at Sevillana de Electricidad (Spain). In 1997, he was appointed head of commercial regulation at Endesa Distribución. In 2000, he joined the mergers and acquisitions (M&A) department of Endesa Europe. He was appointed Managing Director of Endesa Power Trading Ltd (UK) in 2003. A year later, he became responsible for energy management at SNET (France). In 2008, he was appointed Managing Director of SNET (France). In 2009, he became Director of Corporate Development at E.ON France. In 2011, he founded Haya Energy Solutions (HES), a consulting firm focused on optimising the energy management of consumers, producers and retailers of gas and electricity. From 2015 to 2018, Antonio combined the consulting activity at HES with the general management of 2 production facilities in France (2 CCGTs x 410MW), owned by KKR. At the end of 2018, he joined Asterion Industrial Partners, an infrastructure investment fund, as an operating partner. Antonio currently devotes most of his efforts to the Asterion Portfolio, while advising through HES companies in the energy sector in France, Italy, Germany, UK and Spain. 

Education

Antonio graduated from the Escuela Técnica Superior de Ingenieros of Seville (Spain) and holds an MBA degree from Deusto University (Spain). 

Antonio Haya

CEO