We have seen in the last couple of days some long-dated power in the Summer trade.

Summer 07 traded at £42.60 (yesterday)

Summer 08 traded at £45.30 (down from £46.00 yesterday).

Summer 09 traded at £45.30 (yesterday)

Summer 10 traded at £42.30 (yesterday)

If we look at the way the Summers have traded we can see that players feel that the Summer is not very volatile. Generally there is more than enough generation to meet demand, and most Summers are bought early as a hedge and then deteriorate during the delivery period. In fact if we look at where the balance of Summer 06 and the dayahead numbers are this would be around £37/MWh and so perhaps paying for Summer 07 looks expensive. Particularly when we see that volatility is low. Value at Risk numbers would suggest that one can afford to leave the Summer right up to delivery, however history suggests that traders rarely do this and tend to hedge most of Summer long before the event. Day ahead volatility in the Summer can be quite dramatic, an outage lasting longer and a squeeze in some supply can cause some shocks, when plant is often out on maintenance. For this reason the Summer is more often than not hedged rather than traded.

Looking at the Summer forward curve above, Summer 10 looks good value, this is an opportunity to buy some long dated power which has priced into it a host of assumptions on world demand, emissions markets etc, and is priced a mere £3 above the low of Summer 07. From a hedging strategy it might well be worth getting some in, before the market rises.