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German price zones would depress Nordic power – analysts

(Montel) If European energy regulator Acer forces Germany and other countries to split into several power market price zones, it would lead to lower prices for Nordic power, analysts told Montel this week.

"How much prices will fall will depend on the zone division. But we will see many hours with very low prices and this will have a knock-on effect in the Nordics," said Marius Holm Rennesund of Thema.

Last week the head of Acer's electricity market unit told Montel Europe was likely to see the introduction of more power price zones to meet an EU-wide goal to open up at least 70% of cross-border links.

Northern Germany had large amounts of wind power but relatively low consumption often causing a power surplus in the region and prices there would drop if the country was split into price zones, Rennesund said.

Coal cost key
The effect on Nordic prices might not be as great as the market might have expected previously, however, said Sigbjørn Seland, chief analyst at StormGeo.

"This is because rising carbon prices have lifted the short-run marginal cost of coal-fired power production. Prices in a northern German zone would likely average around this cost, which is currently around EUR 37/MWh," Seland said.

The Nordic front-quarter power contract, meanwhile, was last trading around EUR 42/MWh.

When it was windy in Germany, the Nordic region saw large imports already, so a new price zone structure won't make much difference, agreed Wattsight analyst Tor Reier Lilleholt.

It would also be more attractive for Germany to export to other countries where prices were often higher than in the Nordic region, he added.

"The coming years will see more grid capacity built out of Germany, with new connections to Norway, Denmark and the Netherlands, in addition to upgrades between the north and south of the country. This will dampen the effect of price zones," Lilleholt said.

Although the 1.4 GW Nordlink connection would likely see large amounts of German power imported to Norway when it came online late next year, the local hydropower system there was flexible and would limit the price impact, he added.


Reporting by:
Gert Ove Mollestad
15:09, Wednesday, 23 October 2019