We have seen Winter 07 below £50 but it was before the market had a high priced emissions curve. In reality if Winter were to breach £50 we would need October prices to be below £40 Mar and Apr prices to be below £50 and January to be below £60. We know that these are all technical and pyschological levels which are difficult for traders to breach. Fundamentally, fuel prices have to be very low for these numbers to breached. However, with volatility coming out of the curve it is clear that the profit margins on clean spark and dark spreads are being squeezed and this is seeing the power curve develop a life of its own.

Carron Energy (Uskmouth IPP) have recently entered into a dark spread deal with Morgan Stanley. This deal is effectively a financing deal to allow them to build a new power station and allows them the chance to amortise a cashflow. However, one suspects that as the spreads get squeezed this deal will in a few years time look fanatastic. As coal plant its biggest fear is that the spread narrows because this is in effect the profit margin on the station.