Change of Iberian forward curve model on 1st December 2022
Following the November polling results, it came to our attention that leading market participants have switched to using EEX (European Energy Exchange) contracts for longer tenors of wholesale electricity for Spain and Portugal, rather than those traded on OMIP. Prior to change Pexapark used to have Iberian curves based on OMIP contracts only but that is no longer so. Pexapark changed construction of price forward curve from pure OMIP to a blended OMIP+EEX model.
As of December 1st 2022, all Spanish and Portuguese products are priced using a blended price forward curve construction, which works as follows:
0-2y: OMIP only
2-5y: linear blending of OMIP and EEX
5y+: EEX only
Capture factor changes deployed on 7th June 2022
As part of our backtesting of all elements of the Pexaquote methodology, price capture factor assumptions are subject to continuous review. Backtests cover the two key assumptions regarding capture factors assumptions: 1) level of the capture factor curve – ongoing backtesting of the match between recent historical capture factor realizations and Pexapark’s modeled capture factors, 2) the annual rate of capture factor decrease, as driven by future capacity additions in the price zone. While all models have been recalibrated, the following material impacts deserve to be highlighted:
Nordic Onshore contracts price lower, with impacts ranging from ca -7% to ca -12%, based on the adverse recent capture factor performance and substantially more adverse estimates of future cannibalization. Generally, the pattern is that the Southern zones of Nordpool, where demand is high, are less affected, whereas the less populated Northern zones suffer substantially more.
Italian Solar contracts drop, with the main culprit being an upward revision of future cannibalization estimates (ie a more rapid decline of capture factors).
All offshore contracts - The levels of capture curves were reset modestly lower but future capture factor estimates have been materially revised downwards. Price drops are mostly around -10% with DK2 offshore prices dropping by -15%.
Bid/ask parameter changes deployed on 1st June 2022
Heightened tension in European energy markets has brought about a widening of bid/ask spreads. As part of our regular backtesting process we have updated bid/ask spreads for the markets Germany, Spain and Italy.
Volatility model changes deployed on 16 May 2022
While immediate supply fears have abated on the back of steady gas flows, the situation in European energy markets remains precarious, as European sanctions and Russian countersanctions may spell major market disruptions. With Europe now turning to alternative suppliers, stiffer competition for spot volumes of coal and gas and the loss of longterm price-stable Russian supplies is bound to feed into structurally higher volatility.
With a view to reflecting these recent changes of market conditions adequately, we have shortened the volatility calibration period to a three year window ending in April 2022. The resulting calibration reflects a generally higher level of volatility in particular for short maturities. In view of the materially higher level of risk, liquidity premia increase with the update, leading to lower PPA prices. These changes become effective with reporting date 2022-05-17.
Change to Greek model as of 23rd of December 2021
During the market turmoil experienced in December 2021, Pexapark’s Greek price curve has experienced unusual levels of price volatility on the long end. The root cause lies in the construction of the long end of the Greek market curve (note that EEX currently only quotes a single yearly contract) which builds on the Greek/Hungarian front year price spread and the contango/backwardation of the Hungarian price curve. Said (illiquid) Greek/Hungarian price spread has become unstable due to the current market distortions. Based on Pexapark’s analysis of historical price dynamics, the price curve model will be updated to use Greek prices where available and will be continued with Hungarian prices thereafter. This update will remedy excessive price swings and peg the long end of the price curve to a better-observable market.
Change of PL solar capture curve as of 9th December 2021
Polish solar capture curve has been recalibrated to reflect the aggressive solar capacity growth happening in past 3 years and forecasted in the near future. The impact affects all solar Pay-as-Produced contracts resulting in their reduction in price.
Change of UK forward curve model as of 24th September 2021
The construction of Pexapark’s UK baseload forward curve is based on daily settlement prices received from LEBA (London Energy Brokers’ Association). Up to now, the model has been using liquid regularly quoted contracts in the feed. Due to the current dislocation in the market, we have decided to improve the model by including also less liquid contracts up to the 6th season in order to better capture the deep backwardation of the price curve. As of the release date of the improved model, this affects mainly long-dated PPA prices with the 10yr PPA prices dropping by ca 5 GBP/MWh.
Volatility model changes deployed on 10 May 2021
In the course of the regular review of historical market price dynamics, we have updated volatility models for the following geographies: Austria, France, Germany, United Kingdom, Netherlands, Poland, Portugal, Spain, Czechia, Romania, Slovakia
Change of UK forward curve model as of 1st April 2021
Pexapark’s forward curve model for Great Britain is based on term prices received from LEBA (London Energy Brokers’ Association). The readily observable tenor range for UK power contracts is limited with longer-dated contract prices being only intermittently available. In order to avoid that such intermittency leads to erratic price curve behaviour, Pexapark’s curve model hitherto used a level continuation of observable prices with a fixed winter/summer spread. In light of the substantial widening of UK winter/summer spreads, this assumption is no longer deemed appropriate, therefore we have switched the model retroactively back to 1st April 2021 to apply a level continuation referencing the longest reliably observably winter/summer spread.
Model changes deployed for Iberian Markets on 31 March 2021
PAP & FHP Solar: Models have been recalibrated to reflect the shift of offtakers towards assessing Iberian solar cannibalization risk more defensively. While the model adjustment affects all tenors, the impact is most substantial for the 10yr and 15yr products.
Model changes deployed for Iberian Markets on 05 June 2020
BL A, BL M (all technologies): Annual baseload PPA prices have been lifted, resulting in less steep discounts as a function of tenors. Positive price impact.
PaP Solar: Prices for the 10yr and 15yr points were lowered to reflect anticipations of increasingly strong cannibalization assumption.
PaP Wind: Price increases are driven by higher BL A & BL M prices