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Come rain or shine: the impact of weather on the French power market – November 2020

As France progresses towards its renewables ambitions, understanding the relationship between weather variables and assets revenues becomes crucial as both production and prices are affected, and revenues’ volatility will have to be managed accordingly. This report highlights the impact of weather on the French market at both market level and asset level.

Key takeaways include:

  • Past weather fluctuations have resulted in notable shifts in renewables generation and power demand. For example, weather deviations alone have resulted in deviations in annual power demand of up to 30 TWh, and hydro load factor by 10 p.p.
  • As renewable capacity expands, the French power market becomes increasingly affected by weather outturns: price volatility increases fourfold by 2050. This is due to the combination of a very thermosensitive demand and a higher volatility of total power production
  • It is important to consider the impact of weather on both production and capture prices together. Weather-driven variations in gross margins are likely to be lower for renewables than for gas generators as lower renewables production is typically paired with higher renewables’ capture prices when low thermal production typically comes with low capture prices for thermal assets
  • Weather variations typically affect short-term investments which could be exposed to several consecutive bad-weather years. Investments over the long-term see weather risks smoothed-out and diminished. Overall, the project IRR standard deviation due to weather over a 30 year investment horizon stands at 0.2 p.p. for onshore wind and solar projects

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