Vienna (Platts)--9Dec2008

German forward power's most important price driver in 2008 was and will
remain coal, Marcus Bokermann, head of research at Swiss utility EGL, told a
cross-border power conference in Vienna Tuesday.

"Over the past year clearly the price had the biggest impact on power
prices and while the economic recession in the last quarter of 2008 somewhat
replaced coal as main driver we expect coal to be the primary power price
driver again after the first quarter of 2009," Bokermann said.

He also said he still saw a "significant downward potential" for
year-ahead coal prices CIF ARA from their current levels. "If we look at the
oversupply of bulk freight, the economic downturn that is now also beginning
to affect China and India and compare the overall situation with the low
production costs of coal, I still see much downward potential for coal
prices," Bokermann said.

Front-month Brent crude oil prices Bokermann expected to have now dropped
to levels where the product had found support. "Looking at current levels of
around $40/barrel I think the price will stabilize now and not continue to
fall much more in the mid-term," he said.

Concerning carbon prices, he saw a mid-term value for EUA allowances
around Eur20/mt. "I don't think second phase allowances will drop to zero as
did first allowances, because there will be a small amount of shortage for
second phase EUAs," Bokermann said.

GERMAN POWER MARKET LIQUIDITY STABLE DESPITE RECESSION

Contrary to the expectation of the majority in the market, Bokermann said
that there had not been a drop in trading volumes in German forward power
trading as a result of the unfolding economic crisis although other European
markets had been affected.

According to Bokermann, German 2009 baseload OTC and exchange power
trading volumes had dropped from around 25,000 MW (nearly 20,000 MW OTC) in
September down to a bit more than 20,000 MW (15,000 MW OTC) in November but he
added that "this drop was mainly the market beginning to switch to Cal 10
power as main forward contract." Cal 10 base trading volumes rose from around
6,000 MW to 8,000 MW during that time.

"Contrary to many reports, there is no clear impact on liquidity in the
German power market on the OTC or exchange power market and there is also no
trend away from OTC towards exchange," Bokermann said.

In the days after the collapse of US investment bank Lehman Brothers
there had been a brief dip in OTC power trading and the EEX said its exchange
based derivative trading volumes had briefly risen significantly.

But Bokermann said that liquidity in the Nordic power market had seen
"dramatic drops" and he said this was because hedge funds had been much more
active there than in other European power markets. "Many of these funds have
been hit hard by the credit crunch and have wound down positions," he said.

The French, Dutch and Czech forward power markets, according to
Bokermann, also suffered slight dips in liquidity since September as financial
players that have reduced their positions since September had a bigger market
share here than in Germany.

In the long term, however, Bokermann said he saw an overall increase in
forward power trading volumes "as a result of further liberalizations
throughout Europe and because players will need to hedge themselves against
volatile physical prompt markets."
--Henning Gloystein, henning_gloystein@platts.com