(Montel) The surplus in hydropower resources in the Nordic region combined with potentially lower consumption amid the coronavirus pandemic will keep the area's spot prices below EUR 10/MWh for most of the year, analysts said on Tuesday.
"For the rest of this year the hydrology and weather remain the key factors. Hydropower reservoirs will fill up completely and this will mean spot prices around EUR 8-10/MWh until November," said Tor Reier Lilleholt, analyst at Wattsight.
The consequences of the ongoing pandemic are uncertain but any price effect would be on the downside if power consumption is slashed, he added.
So far power demand in the region has remained unaffected by restrictions imposed amid the spread of the virus.
"The system price has stabilised around EUR 10/MWh. We expect to see this level until next winter," said Christian Holtz, analyst at Sweco.
The Nordic region's benchmark price has averaged EUR 10.46/MWh so far this month, putting it on course to be the cheapest March since the euro was introduced in 1999.
In the futures market the Q2 2020 contract was last traded at EUR 9.55/MWh and Q3 at EUR 11.10/MWh.
Wattsight figures showed the hydrological balance – a measure of reserves stored in reservoirs, snow and soil – was at 30 TWh more than normal, while Storm Geo estimated a 45 TWh surplus.
The figures include large amounts of snow expected to melt soon and fill up reservoirs which are already well-stocked following a mild and rainy winter.
Increased output
Hydropower producers have generated around 800 GWh more than normal in the last three weeks, Lilleholt said.
They have to either maintain output to make space for the melting snow or risk reservoirs spilling over.
"These producers are now pricing their output below the marginal cost of Nordic nuclear production. It's a case of use it or lose it," said Storm Geo analyst Sigbjorn Seland.
Nuclear operators in the region would also likely reduce generation if spot prices start to average around EUR 8/MWh, which is about the marginal cost of production, he added.
Seland said it was difficult to assess the effect of the Covid-19 outbreak but that the strong hydropower resources would trump this regardless, at least in the short term.