If we assume that Winter this year is unlikely to arrive with todays temperature today (in London) at 10 degrees, and with nights in London warmer than they were during the average of Summer. The market must assume that the next serious market signal must come in Summer 07.

We know that the Summer 07 has moved from £47 to todays current low of circa £26. Although the drops have been well managed and have been mainly moved on the back of day ahead prices (currently at £24.) it is perhaps surprising that Summer has not fallen further.

The main reason for the lack of a real Summer push downwards is that players fele that we are at fundamental lows, in other words generators are in danger of turning off, and selling the fuel instead. Clean spark spreads whilst low are around £6 which is just about justifiable for a generator to get out of bed, interestingly the coal players are seeing dark spreads at £7 so in thoery they will run before the gas stations. In reality though flexibility and availability will be more of a determinant when running a portfolio because the difference between the two prices is now so negligible that operational issues trump financial issues. We could therefore see some vertical players start to buy up the market with the intention of turning off plant for the summer. They will then sell options (the right to buy) which allows them to offer plant in at certain strike prices. Consider a record summer in terms of temperature we could also see a very high demand with air conditioning and the likelihood is that this will bring these optioned generators back into the market and they get the option premia as well. A very smart trading strategy.