NORDIC – Front week plunges 5% on wet, mild outlook

(Montel) Nordic power futures dropped early on Wednesday amid slumping coal prices and some weather forecasts indicating wetter and milder conditions approaching the region than previously expected.

The front week contract traded last at EUR 32.60/MWh, down EUR 1.35 on the day, while the March contract was down EUR 1.59 at EUR 29.55/MWh.

The latest EC operational weather models suggest the region next week will get milder and wetter weather than seen over the last 24 hours.

This has contributed to uncertainty, said Sigbjørn Seland, chief analyst at Nena. “The ensemble models do not confirm the bearish shift that the operational forecasts show. In my opinion the market has dropped too much,” he said.

Mattias Morin, trader at Swedish utility Mälarenergi, agreed, adding “it looks clearly as an overreaction” to the latest forecast.

Nena expects the hydrological balance – energy stored in reservoirs, snow and soil – to be in a current deficit of 7-8 TWh. This could widen to 10-15 TWh at the end of February, according to Seland.

“The market has not taken that into account, as I see it,” he said.

Further out, the Q2 contract dropped EUR 0.99 at EUR 24.75/MWh in line with cheaper production costs for coal-fired production.

The short run marginal cost for coal-fired production in Q2 was last seen at EUR 33.60/MWh, down EUR 0.70 on the day, according to Montel data.

Spot on track for year high
In the day-ahead market, prices have risen this week thanks to dry and chilly weather.

The day-ahead contract was last seen in a bid-ask spread of EUR 48-51/MWh, indicating the spot price for Thursday could settle a new year high. The price for Wednesday delivery outturned at EUR 39.05/MWh.

“It’s hard to predict if the peakload hours will end up at EUR 70/MWh or EUR 90/MWh so the outcome is uncertain,” Seland said, predicting a system price settlement of around EUR 48/MWh.

“This could be the highest spot this winter. From Friday the worst chill is behind us, while more wind is expected,” Morin said.

Wind power output is expected to drop from 5 GW currently to 2 GW on Thursday, according to Nena.

Meanwhile, temperatures are set to average 5C below the norm on Wednesday and Thursday, according to Sweden’s SMHI.