Nena News

MONTHLY – Nordic spot may jump EUR 1 on coal, higher demand

(Montel) Higher consumption after the summer holiday season and bullish coal prices are set to lift average Nordic spot prices EUR 0.50-1 month on month in August, market participants told Montel.

Spot prices averaged EUR 25.32/MWh last month, while the August future contract went to delivery at EUR 25.05/MWh on Friday on the Nasdaq Commodities exchange.

“There will be no major changes in the power system balance in August, except an anticipated consumption increase towards the end of the month [after the summer holiday],” analyst Sigbjørn Seland at Nena said.

The system price would average around EUR 0.50 higher than the mean July spot.

Relatively wet weather forecasts, meanwhile, will virtually eradicate the current hydrological deficit in the Nordic region, he added.

More rain
Different weather forecasts indicate 9.1-11.6 TWh of potential hydropower output from rain in Norway and Sweden over the next 10 days, compared to a norm of 6 TWh, according to SMHI.

Increased inflow from rain could lead to hydropower producers lowering their prices in the first week of August, Seland said, although he pointed out that since March monthly spot prices have averaged higher than the settlement price of the equivalent financial contracts.

The wet weather forecast has eliminated the risk premium in the August contract, another Norwegian analyst said.

However, the contract is currently “priced around EUR 1 too low both due to bullish coal prices and technical problems with nuclear reactors in Sweden”, he added.

The output from the Swedish nuclear reactor Forsmark 3 (1,167 MW) is currently limited due to technical problems and the Ringhals 3 reactor (1,063 MW) is also scheduled to undergo annual maintenance from Wednesday.

Reversed power flows

Reservoir levels in Sweden fell last week – by 0.1 percentage points to 63.2% – and this could lead to a reverse in the power flows between Germany and Sweden, with the latter set to import from its near neighbour.

“Area prices in Sweden will then be pegged to German off-peak prices which are highly dependent on coal prices,” the analyst said.

The German off-peak August last traded at EUR 25.69/MWh on the EEX exchange.

Coal is currently bullish with the Q4 16 contract in the API 2 window having risen 23% to USD 62.75/t since 1 June, while the Nordic Q4 power contract has only risen 6% in the same period.

However, it remains to be seen whether coal will remain strong as oil prices are sliding, the analyst said. 

The front-month contract for Brent crude North Sea oil was trading at 15-week lows on Friday around USD 42/bbl.

Gert Ove Mollestad
08:57, Monday, 1 August 2016

Editing by:
Robin Newbold
08:57, Monday, 1 August 2016