Europe power trade to grow, prices rise: RWE

LONDON (Reuters) - Wholesale power trading in Europe will continue last year's strong growth as more electricity crosses borders, markets converge and prices rise even more, a major market-maker said on Wednesday.

"There is growth in the trade of electricity as we see big players concentrate their operations, and new ones are developing," said Peter Terium, head of the RWE utility group's (RWEG.DE) RWE Supply and Trading unit.

"These growth signals will bring more participation, which will add further liquidity to drive these markets," he told the Reuters Global Energy Summit in London.

Figures presented by RWE and sourced to Prospex Research showed that power volumes last year in Europe's seven biggest power markets rose by 8 percent to 9,395 terawatt hours.

In Germany, the biggest trading hub, volumes gained 6 percent year-on-year and have reached about eight times the level of consumption.

Power prices have been rising steadily for four years, boosted by surging oil, gas and coal and compliance with an ever stricter environmental regime for energy producers.

German and French power forwards for the year ahead on Wednesday stood 10 and 9 percent above their levels at the beginning of the year at 72.75 and 75.75 euros respectively per megawatt hour.

"We are in a high price environment and I don't see an end to it," Terium said. "All trends I can read are saying we are even getting into a higher price environment."

GROWING DEMAND

Terium cited supply and demand fundamentals. Demand for power was growing in Europe, he said, despite energy savings drives and what he described as "an ongoing war for resources" (coal, oil, gas) over fuel inputs worldwide.

Terium said that European generators were unlikely to renew capacity quickly enough to offset ageing plants within the next five to 10 years.

The expansion of renewables was not keeping step with demand, and costs to emit CO2 after 2012 would probably rise strongly.

"That makes people hesitant to invest," he said.

Terium also said that with fundamentals firmly supporting prices on the forwards power curve, there was no sign that speculation was behind that contango, nor that it would end because of the current worldwide financial jitters.

"Specifically in electricity and gas markets, there have not been negative influences from the subprime crisis," he said.

Europe's power market has benefited from smoother cross-border flows between France, Belgium and the Netherlands, spurred on by the joint efforts of regulators, network operators, energy exchanges and wholesale market participants.

The European Union Commission, which is backing the process, also wants more bourses to link up over the next few years.

Last Friday, Germany's EEX and France's Powernext laid out a roadmap for a merger to be completed next year, which will already bring together a third of European power consumption under one roof.

If the Benelux, the Nordics and Britain also joined, "that would become a marriage of strength," Terium said.