If we consider that Winter 06 is likely to outturn at lower than £25 it is difficult to justify the spending £15 premium for Winter 07. But a fair look at Winter 07 suggests that one must add an additional £5 to Q1, 08 as this will have Phase II carbon prices attached to it. IF we strip this out of Q1 it would price Winter 07 at £37.50 and so this means that there is a nearly a £12 hike between todays Winter and next Winter, this is on top of the news that supply is likely to be better than it has been throughout this Winter.

Admittedly this Winter has been unseasonably mild, and if next Winter is cold then we could see an increase in demand (something which the system is likely to be able to cope with) but at a cost, it might well move us into a low £30 range.

So as a buyer you have justify spending £39 on Winter 07 today by fundamentally pricing it as so

Raw Cost - £25 (as per this winter)

Carbon - £2.50

Risk premia associated with tight supply margin and colder Winter £3.50

Risk premia associated with buying forward. £8

If Winter 07 fell by £3-5 then it would be worth looking seriously at bargain hunting.