Nena News

MONTHLY – Nordic spot to jump 13% on dry weather, coal

(Montel) Nordic spot prices are set for a 13% month-on-month rise in October, buoyed by dry, cold weather, as well as surging coal and carbon prices.

The forward contract for October has soared 14% since the start of the month and went to delivery at EUR 28.35/MWh on Friday, indicating the system price will rise more than EUR 3 on average compared to September and reach its highest level since January.

Traders and analysts pointed at dry and cold forecasts for the first half of the month, which will further reduce hydropower storage levels, while lifting electricity demand for heating.

Prices had also responded to rising coal – with the front-quarter API 2 contract recently trading around its highest point since December 2014 – and carbon prices, with the short-term marginal cost for a coal-fired power plant in October jumping EUR 3.32 to EUR 31.83/MWh in the last month,
according to Montel’s figures.

“The October contract has now risen slightly above our fundamental forecast for the system price next month,” said senior analyst Tor Reier Lilleholt at MK Online.

Export problems
Higher prices may also reflect a fear of persistent low export capacity from southern Norway to Sweden, he added, potentially forcing Swedish producers to lift local spot prices above those in neighbouring countries to save water in reservoirs by reducing exports.

Export capacity from southern Norway to Sweden has been halved to 900-1,245 MW since late June due to a cable failure under the Oslo fjord, contributing to a EUR 4.25/MWh price difference between the Stockholm (SE3) and Oslo (NO1) price areas in September.

The market for price area differentials, Epads, has pegged this difference at EUR 4.05/MWh for October, with the installation of a reserve cable expected to increase transmission capacity in the second half of the month.

The higher Swedish spot price is also linked to regional differences in hydropower reservoir levels, with those in Sweden at 68.6% last week, far below a seasonal median value of 82.9%. Norwegian reservoirs, in contrast, stood only 3.1 percentage points below the median of 86.6%.

Hydrological deficit
The overall combined storage in Nordic reservoirs, snow and soil was heading for a 10 TWh deficit compared to normal, said senior analyst Sigbjørn Seland at analyst Nena.

This deficit along with higher prices for coal, carbon and continental power has lifted price expectations for the coming winter considerably in recent weeks. The Q4 contract rose 15% to EUR 29.70/MWh this month, while the Q1 was up 17% at EUR 31.60/MWh.

“Dry weather and rising prices further out on the curve will also allow hydropower producers to increase their prices short term,” said Seland.

This would be partially offset by higher nuclear output, with Ringhals 3 (1,063 MW) and Loviisa 2 (492 MW) scheduled to return from annual maintenance on 10 October.

Reporting by:
Olav Vilnes
16:12, Friday, 30 September 2016