Montenegro is on track to end this year as a net electricity exporter to Italy, against initial market projections, with the cross-border capacity auction results for 2024 implying this may continue into next year.
The annual cross-border capacity (CBC) auction from Italy to Montenegro for 2023 delivery was sold at €9.50/MWh, some €1.99/MWh higher than the reverse direction and pointing to expectations of Italy being at a net exporter position on the interconnector between the two countries that was launched in 2020.
But monthly capacity from Italy to Montenegro cleared at a discount to the opposite direction for every month this year, with the spread widening by as much as €16.72/MWh for December.
Montenegro was a net exporter so far this year, with net flows averaging 481MW in that direction, data from Italian transmission system operator Terna show. Italy narrowed its position as a net importer from Montenegro in the third quarter, with flows from Italy averaging 30MW compared with 357MW in the reverse direction (see chart).
The Montenegrin Mepx spot index has cleared at a discount to Italy every month since it was launched in late April. The Montenegrin discount was at its widest in November when it averaged €25.88/MWh. Strong hydrological conditions weighed on the Montenegrin spot, with hydro stocks at the end of week 47, or 26 November, sitting at 367.3 GWh — the highest since week 30. Stocks were up by 60GWh on the year and 103.9GWh on the previous five-year average.
And Montenegrin wind output in November has averaged 51MW, up from 38MW in October to the highest this year so far, according to data from the European transmission system operators association Entso-E.
Italy has widened its position as a net importer from Montenegro so far in December at 536MW, bringing the fourth-quarter average to 539MW compared with 543MW in the second quarter.
Italian gas-fired generation has averaged 12.6GW so far this month, the highest since July and the third-highest for any month this year. Declining solar and wind combined output, which has been at its lowest since February at 4.7GW, provided support, along with recovering demand. Italian power consumption stood at 32.9GW on 1-13 December, from 29.9GW in the same period last month and from 31.7GW in December 2022.
But strong imports and hydro generation have tempered higher thermal output and demand, weakening support of the Italian day-ahead price. The Italian wholesale power spot price (Pun) has delivered at a €19.05/MWh premium to the Montenegrin market so far this month, the tightest since September.
Outlook
Italian forward contracts delivering next year have been extending their premium to the Hungarian market — where flows to Italy transit through Montenegro — in recent sessions, pointing to expectations that Italian imports from Montenegro could hold strong in 2024.
The Italian front-quarter base-load contract was most recently assessed by Argus at a €8.35/MWh premium to Hungary, up from €7.05/MWh on 1 December. The Italian contract has stood, on average, €8.30/MWh above Hungary in December and €8.97/MWh in this quarter. Italy’s January base load last settled €11.25/MWh above the Hungarian market, with the contract closing at an average €9.61/MWh premium to the Hungarian equivalent since the start of the month.
Hungarian near-term contracts posted sharper losses than their Italian equivalent this week, as expectations of strong German wind power and rising temperatures in Budapest weighed on prices. But expectations of above-average temperatures in Italy in January and falling PSV gas prices also drove losses in the Italian market.
Hungary calendar 2024 was assessed at an €8.20/MWh discount to Italy on 12 December, while it has averaged a €7.36/MWh discount so far this quarter, implying power will continue flowing from Montenegro to Italy into 2024. Hungary last flipped to a discount to Italy on 14 August and has remained there ever since. Despite this, the Hungarian front year has averaged a €1.14/MWh premium to Italy since 2023 began (see chart).
But Montenegrin exports could narrow in 2024, with the country forecasting its output will fall by 9.6pc on the year to 3.6TWh as a result of lower lignite-fired and hydro generation. The country will continue to run the 225MW Pljevlja lignite-fired plant illegally after it overran its permitted 20,000 operating hours under an opt-out from the Large Combustion Plants Directive scheme. The plant is expected to generate 1.3TWh next year, down from 1.5TWh this year.
Montenegrin distribution system operator (DSO) Cedis said today that it will hold an auction to cover losses in the distribution system for 2024. The firm is seeking 294.5GWh of power, with different volumes sought at each hour of every month.
The 140MW of 2024 capacity offered from Montenegro-Italy sold at a €9.93/MWh premium to the 140MW of capacity offered in the reverse in the CBC auction, flipping from 2023 and implying continued Montenegrin exports to Italy.
Source: Argus Media
