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Nordic power could drop EUR 5 on Hydro closures – analyst

(Montel) Nordic power prices could fall by up to EUR 5/MWh if Norwegian aluminium producer Norsk Hydro closes down all its output in Norway, analysts StormGeo said on Wednesday.

“A full closure would clearly affect the power market with prices dropping around EUR 0.30/TWh of reduced consumption. So in the worst case scenario of all output closing, that would mean EUR 4-5/MWh coming off the price of a yearly futures contract,” analyst Sigbjørn Seland told Montel.

Front-year Nordic power last traded at EUR 39.70/MWh on the Nasdaq Commodities exchange, down EUR 0.25 on the day.

Norsk Hydro told Montel earlier it might be forced to shut its Norwegian plants due to a shortage of raw material in the wake of a refinery closure in Brazil.

The company’s annual electricity consumption in Norway is around 15.5 TWh, or 12% of the country’s total power use. It produces about 10 TWh of this at its own hydropower plants.

Seland stressed the uncertainty on how much output would be cut but noted the company’s share price had fallen sharply – by about 13% to the time of writing on the Oslo stock exchange to NOK 42.91 (EUR 4.54).

“Negative impact”
“The markets seem to believe there is a good chance of a major negative impact on the company. The logical conclusion is to also adjust down the firm’s expected power consumption next year, something which affects power price estimates,” he said.

Portfolio manager Magnus Lingjære at Norway’s Los Energy highlighted the uncertainty around the incident, however, saying it was too soon to quantify the potential fall-out from the event.

Norsk Hydro spokesman Halvor Molland told Montel the company was hoping to be able to reopen operations at its Brazilian refinery in the future and to avoid knock-on effects in Norway.

“Closing down a plant is a last resort as it is a costly process. But today we are looking at all scenarios in order to be prepared,” he said.

It would take “a couple of months” before any shortage in raw material affected Norway, he added.

(EUR 1 = NOK 9.44)

Reporting by:
Gert Ove Mollestad
12:22, Wednesday, 3 October 2018