October 27, 2016 / 12:00 PM / 3 years ago

French nuclear problems shake European power market, boost prices

* French nuclear fleet restricted, causing tight supply

* Prices up across Europe’s medium-, long-term curve

* Germany, others to plug gaps, see their prices rise

* Problems increase importance of winter weather

By Vera Eckert and Oleg Vukmanovic

FRANKFURT/MILAN, Oct 27 (Reuters) - Deepening setbacks to France’s nuclear reactors have shaken confidence in Europe’s wholesale electricity markets as traders push winter prices to new highs in anticipation of fresh outages and tight supply.

The month-long rally intensified this week after French nuclear safety watchdog ASN warned its sprawling probe into forged quality control reports on reactor parts would turn up more irregularities. .

This leaves traders guessing as to how many more reactors could be shut.

The scale of forced closures in nuclear power-reliant France - 19 reactors offline and 12 more due to shut - is the biggest since the Fukushima disaster in 2011 crippled Japan’s entire nuclear sector.

It has driven mid-term prices higher and posed questions about the sustainability of long-term supply in Europe as France drains surrounding countries’ output via five large power interconnectors.

“Overall, I would expect a tight fourth quarter where high prices will stay in place, especially if the weather is cold,” said Giacomo Masato, research analyst at brokerage Marex Spectron.

However, he tied price moves to weather patterns, as long cold periods amplify demand whereas wind and sunshine levels play a big role in deciding supply availability from renewable plants.

“Weather, both wind generation and electricity demand, will determine the scale of the impact but the market is currently pricing in the risk of a cold or average winter,” said James Cox of consultancy Poyry.

Traders said other fuels that interact with power such as coal, oil, gas and EU carbon emissions respond to different drivers and were only partially bullish because of the French nuclear situation.

“Panic plays a great role today but the question is how many people are really still short,” said a German trader. “Maybe the rallies were exaggerated and will collapse when the winter weather turns out warmer.”

But concerns are adding up.

On Tuesday, a delayed restart at the Civaux-2, Dampiere-3 and Gravelines-2 plants added to nervousness as much as a French government decision to maintain a mechanism under which main utility EDF must sell supply cheaply to rivals.

Apart from facilitating speculative re-selling into the tight market, this also stirs more demand. “EDF is in the market to buy to supply to others,” one trader said.

In addition, there have been more irregularities detected at EDF reactor Gravelines 5.

French wholesale 2017 power prices hit a contract high of 45.6 euros per megawatt hour (MWh) on Thursday amid gains on coming weeks and months.

“Would France stop all the faulty nuclear plants in case it means shutting down factories in the country and have people freezing?” asked one trader.

Prices in Europe’s largest power supplier Germany with its vast installed renewable capacities are also rallying.

Its 33 gigawatt coal capacity can also be revved up to help when other markets are short, thanks to a high level of interconnection.

German Year Ahead power hit a two-year high of 33.65 euros. (additional reporting by Bate Felix in Paris, editing by William Hardy)

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