NORDIC – Spot set to dive on soaring inflow

(Montel) A rapid increase in inflow due to rising temperatures and forecast rain could put massive pressure on the system price, market participants said, with contracts dropping in value across the board on Tuesday.

The front-week contract last traded down EUR 0.45 at EUR 24.85/MWh, while the front-month contract was EUR 0.30 lower at EUR 23.75/MWh on the Nasdaq Commodities exchange.

“We will see rising temperatures and precipitation, so the inflow into reservoirs will surge massively. This will put strong downward pressure on the system price. Prices could potentially go very low, especially if there are high levels of wind power production in the system,” said senior Nena analyst Sigbjørn Seland.

“If hourly prices in Germany drop to EUR 10 at night [this weekend] due to high wind power output the Nordic prices will follow down to that level or even drop to zero in some hours,” he added.

This indicates a significant change from the current situation, with the system price averaging EUR 30.81/MWh in May to date.

Curves falls
The falling spot price expectations also weighed on the front of the forward curve, Seland said.

Precipitation forecasts indicate 6.2-9.6 TWh of potential hydropower generation over the next 10 days, considerably above the norm of 3.7 TWh, according to weather service SMHI, while temperatures are expected to average close to the norm of 11C for the period.

However, there will be a peak the coming weekend with temperatures up to 5C above the norm, according to some models.

Trader Kjell Idar Saure at Norwegian utility Tussa kraft agreed the wet, mild outlook was weighing on the front.

“The rising temperatures will spur the snowmelt and this will weigh on the spot prices,” Saure said.

The day-ahead contract last traded at EUR 28.75/MWh, compared to the current session’s system price at EUR 30.16/MWh.

Wind power generation is expected to fall form an average of 4.2 GW in the current session to 2.8 GW on Wednesday, though this is a public holiday in Norway which will curb demand.

Further out, the front-year contract last traded flat at EUR 22.80/MWh, after hitting a seven-week low of EUR 22.65/MWh earlier in the session in thin trade.

“Coal prices has traded range-bound for a long period of time and there is no strength in the carbon market,” Saure said.

The 2018 coal contract in the API 2 window was last seen up USD 0.66 at USD 64.50/t on Ice Futures.

The financial Nordic power market will be closed on Wednesday due to a public holiday in Norway.