MONTHLY – Mild, wet December to depress Nordic spot

 (Montel) Nordic spot power prices are set to average around 15-year lows in December amid wet, mild and windy weather, although contracts will likely stay above current forward prices, which have been oversold, said market participants.

The December contract shed 14% of its value to EUR 22.95/MWh over the last four weeks, indicating the lowest average price for the month since 2000, according to figures from Nord Pool Spot.

“We are seeing unseasonably low spot prices due to very mild and wet weather, as well as strong wind power output. As a consequence, hydropower producers are reducing their prices and will only continue doing so if this weather pattern continues,” said chief analyst Sigbjørn Seland at Oslo-basedNena.

Meteorologists believe the weather will stay wet, mild and windy for most of December, causing storage levels in hydropower reservoirs, snow and soil to rise from a current surplus of 1 TWh above normal to 10 TWh within the next 10 days, according to Danish trader Scanenergi.

Price expectations for December are also subdued by the Christmas holiday, which normally gives a slump in demand, as well as by the scheduled restart of three Swedish nuclear reactors (3,432 MW) from maintenance between 4 and 8 December.

Potential price rise
Still, many market players believed forward prices for December and the rest of the winter had already dropped too deep.

“The recent very high wind power production has dragged down the price on the December contract. The average system price next month will probably be about EUR 1.50 higher [than current prices on the contract],” said Matthias Hellberg, portfolio manager at Swedish trader Shehperd.

There have already been evidence of price spikes this winter. On 23 November, the system price rose to a nine-month high of EUR 41.14/MWh, with some area prices rising above EUR 60/MWh. Traders said the risk of similar price spikes was not priced into the curve at present.

Last year also saw mild weather for most of December, but still the system price averaged at EUR 31.67/MWh, which is 39% higher than the current forward price.

Back then hydropower reservoir levels stood at 76.6% in late November, compared to 83.9% this year, while installed wind power generation was also lower, with output  for 2015 likely to increase by 1.1 TWh year on year to 31.6 TWh, according to analyst firm Markedskraft.

Another difference is lower coal prices, which reduces the upside potential for power prices in hours where coal is the marginal price setter.

The short-term marginal cost for a coal fired plant in December currently stands at EUR 28.48/MWh, according to Montel’s calculations, down from EUR 31.83/MWh a year ago.