(Montel) Nordic spot power prices are set to average a 12-year high in July after weeks of dry and warm weather have drained hydropower resources.
The futures contract for July on Nasdaq Commodities closed at EUR 47.25/MWh on the last day of June, having risen 14% during the last month.
If day-ahead prices deliver at this level, it will be the highest average price for the month since 2006, when July spot prices averaged EUR 49.52/MWh. In comparison the month was priced at EUR 26.37/MWh last year and just EUR 9.55/MWh in 2015.
Dry, warm spell
“I think the market has corrected to a reasonable price,” said Sigbjørn Seland, chief analyst at StormGeo, noting the effect the dry and warm spring has had on the situation for hydropower production.
For the whole of the Nordic region, the hydrological deficit – a measure of reserves stored in reservoirs, snow and soil – could be as much as 30 TWh, according to some analysts.
Norway’s snow reservoirs currently contain the equivalent of around 6 TWh hydropower, compared to a seasonal norm of 20 TWh, according to the latest figures from energy regulator NVE. So far this year the country has seen 37.8 TWh of precipitation energy, against a norm of 59.7 TWh.
“This spring has been rather unusual weather-wise. It’s basically been dry since February,” said Kjell Idar Saure, trader at Norwegian utility Tussa Kraft.
Little rain in sight
Current weather forecasts also indicate that the dry, warm conditions will persist.
Swedish forecaster SMHI expects rain in the next four weeks equivalent to 5.8 TWh of hydropower generation, against a seasonal norm of 12 TWh.
Their latest four-week outlook was also “considerably warmer” than previous forecasts for the first half of July, said meteorologist Torbjörn Simann.
The month will start with temperatures around 5C above normal in most of Scandinavia, which also means a higher degree of evaporation in hydropower resources.
“The weather forecasts are still bullish. Prices are vulnerable to a change in the weather but we’ll need several weeks of rain to affect the front contracts,” said Markus Herranen, analyst at Enegia.
Further ahead, prices for the entire third quarter look set to remain at a similar level.
The dry conditions also meant that Nordic futures would start trading at a premium to their German equivalents, which is the reverse of the normal situation.
The Nordic August futures contract last traded at EUR 47.50/MWh on Nasdaq Commodities, having risen 14% in the last month, while the equivalent baseload German contract is trading at EUR 45.96/MWh on EEX.
July and August will also see planned outages at a number of the region’s nuclear power plants, reducing supply in the market and further supporting prices, although this effect will be offset somewhat by lower demand amid the summer holidays.
Reporting by:
Roger Fry
roger@montelnews.com
07:54, Monday, 2 July 2018