Drax power have sold a 600 MW tolling deal to Centrica for the next five years, the tolling deal is perfect for Drax as they have fixed coal and emissions prices against the price they get for power. In short they only have maintenance risk, and this can be covered by buying power in the market. Centrica on the other hand experts in gas production have now taken on a contract whose risks lie in emissions and coal, their traders will have a model which will look at emissions and coal prices and assess whether to exercise the tolling option. In reality, Centrica needs this volume as a contract with British Energy is about to expire.

Perhaps interestingly this suggests that British Energy are less likely to hedge forward in large volumes and may rely on hedging in the market, this could be good news for the natural shorts and suddenly one of the longest players in the market looks to be relying on the traded market to off load some of its length.

Finally, Winter 06 fell yesterday on gas drops, but there are some who suggest that the rises in the backend of the curve are going to start to pull Winter 06 further up, if gas responds to carbon then expect higher Winter prices and the market returning to £70 again.