Nena News

MONTHLY – Mild weather dampens Nordic spot spike concerns

(Montel) Nordic spot price expectations for this month have dived by EUR 6-7 over the last few days due to a sudden change to milder weather forecasts.

The futures contract for January closed at EUR 38.80/MWh on 30 December, having risen EUR 3 since the start of the month but analysts polled by Montel believe prices in the low EUR 30s are now more likely this month.

“It seemed like we would get high spot prices when the weather forecasts were very cold… but now we are set to see more normal temperatures and it is hard to foresee prices much above EUR 32,” said Arne Österlind, portfolio manager at Shepherd Energy.

Last week Swedish forecaster SMHI predicted temperatures would average more than 10C below at the beginning of January, prompting a Christmas rally that saw the front-week contract surge more than EUR 10 to EUR 43.80/MWh.

The contract has crashed back to EUR 30.95/MWh on a change to milder forecasts this week.

The mild forecasts represented a drop in demand of approximately 6-7 GW, said Österlind.

“Spot prices around EUR 43/MWh was very likely when the forecasts pointed at temperatures more than 10C below normal in week 2. Now we have more normal temperature forecasts with price expectations adjusted accordingly,” said Nena analyst Sigbjørn Seland.

Weeks 3 and 4 last traded at EUR 32.10/MWh and EUR 32.00/MWh, respectively, with SMHI expecting close to normal temperatures for the rest of January.

Forecasts may change
“What we have seen is that the risk of capacity pricing [where more expensive generation plants are turned on to meet peak demand] has more or less evaporated. But the forecasts have changed a lot recently, so we can’t rule out that they will change again and that we will see another price rise,” said Sigve Ekeland, head of trading at Norwegian utility Lyse.

Another moderating factor for prices was healthy nuclear output, said market participants, with 100% of the region’s installed nuclear capacity currently online, up from 94% a year ago.

Last year, spot prices averaged EUR 29.85/MWh in January but then the hydropower reservoirs contained 23 TWh more in storage than they do currently, according to figures from Nord Pool.

Lower reservoir levels make it easier for hydropower producers in Norway and Sweden to hold back production when demand is low, such as this Christmas weekend, which along with heavy wind caused prices to plunge well below zero in Denmark.

The lower reservoir levels also increase the risk for higher prices later in the year, if the winter turns cold and dry.

The Year 2017 contract went to delivery at EUR 28.40/MWh, indicating a slight increase from the 2016 average system price of EUR 26.91/MWh.

Reporting by:
Olav Vilnes
12:26, Tuesday, 3 January 2017