Summer 06 is trading at £44.50MWh and over the last month has steadily ticked up from below £40/MWh. In this time, prompt numbers have risen and then dramatically fallen. So one might expect a similar fall in Summer 06. Gas prices have been pushing the power prices, and Summer gas has followed a similar pattern with Summer Gas trading higher than a couple of months ago. Furthermore, the spark spread is now at a reasonably comfortable level of £11.50. With emissions prices rising the clean spark spread is trading at a severe discount to the dark spread. During the Summer in a normal world coal plant will be running before the gas plant. As a result of the coal plant running first and the gas plant running less, the fundamentals in spark spread suggest that there should be some form of breakdown. In short we should see a distinct fall in gas prices and possibly see power prices remain high, (because they are now being driven more by coal prices than gas) and so we should see a widening of the spark spread. The fall in gas will affect the curve further out and this will drag Winter 06 down, this is more spark related and we might see a subsequent fall in power prices too.

The problem with this theory is that short term demand issues trump the fundamentals and if demand increases and problems occur then it will be the gas which will be getting the system out of trouble and that comes at a premium. This premium is being left in the gas price and it is now a game of bluff to see who blinks first to sell the length that most players will have acquired over Winter.