NORDIC – Soaring Q1 “may hit EUR 50 in two weeks”

(Montel) Forwards continued to rise on Wednesday amid dry and cold forecasts, which compounded concerns over the hydrological deficit, with one analyst predicting the front quarter could surge to “EUR 50/MWh in the next two weeks”.

The November contract last traded at EUR 41.45/MWh, up EUR 1.30, on the Nasdaq Commodities exchange, while the front quarter contract was at EUR 40.80/MWh, up EUR 1, after hitting an intraday high of EUR 41.10/MWh earlier and the front year was EUR 0.45 higher at EUR 31.10/MWh.

“The weather forecasts indicate a return to cool and dry conditions after a few wetter days,” said senior analyst Sigbjørn Seland at Nena.

The dry weather could cause the hydrological deficit (reserve of water in reservoirs, snow and soil) to widen to about 25 TWh below normal in 10 days, which would be a six-year low, he added.

“The Q1 contract has risen EUR 15 since mid-September and it could hit EUR 50 during the next two weeks if the dry weather situation continues to secure imports from Germany to the Nordic region during peak hours,” Seland said.

Germany’s Q1 contract was last quoted in a bid-offer spread of EUR 48.90-49.80/MWh on the EEX exchange, while the short run marginal cost of coal-fired production for the first quarter was up EUR 0.22 at EUR 36/MWh, according to Montel data.

Different weather forecasts indicate 4.1-9.8 TWh of potential hydropower output from rain and snow in Norway and Sweden over the next 10 days, compared to a norm of 6 TWh, though the latest outlook from SMHI indicates a return to cold and dry conditions at the end of the 10-day period.

French issues
The Nordic market has also been buoyed by strong fuels and rising continental power prices, Seland said.

Fears of a European supply squeeze this winter were heightened further this morning with news that an ongoing probe into the French nuclear industry may reveal more irregularities at reactors, with Germany’s November contract hitting a record high EUR 42.37/MWh and the French equivalent surging EUR 5.81 to EUR 87/MWh.

“We see rising [Nordic] prices today, especially in the front. Yesterday the forecast were a bit wetter and milder but today’s forecasts indicate a return to chilly and dry conditions,” said trader Martin Emblem at Tafjord Kraft.

The widening hydrological deficit is clearly driving prices, he added.

Closer in, the day-ahead contract last traded at EUR 37.60/MWh, compared to the current session’s price of EUR 40.05/MWh.

The system price is set to drop due to an expected increase in wind power generation, higher temperatures and increased reservoir inflow due to rain, said traders.

Nordic wind power generation is forecast to double from an average of 2.5 GW currently to 5.2 GW on Thursday, according to Nena figures.