Nena News

NORDIC – Power prices climb on cold weather outlook

(Montel) Nordic power prices rose in early Wednesday trading, rebounding from a brief dip late in the previous session, as fresh forecasts called for cold and dry weather in January.

The January contract traded last up EUR 1.80 at EUR 32.20/MWh. It had reached a contract high of EUR 33.05/MWh on Tuesday morning before falling back later in that trading session.

The front-quarter contract was EUR 1.55 higher on the day at EUR 28.50/MWh.

“Everyone’s focus is on the sudden stratospheric warming (SSW) event that is expected to bring cold weather in January and possibly for longer,” said StormGeo chief analyst Sigbjorn Seland.

He said today’s forecasts confirmed the cold and dry scenario that has boosted the January contract by more than 60% since 18 December.

“Our meteorologists seem quite convinced we will see an SSW effect, but the uncertainty now is over how severe it will be and for how long it will last,” Seland said, noting the market “has priced in a fairly moderate effect”.

However, he doubted there would be a repeat of the 2018 “Beast from the East” event that caused European energy prices to spike in late winter.

The latest 10-day forecasts suggest average temperatures in the region will drop from just over 1C currently to below -2C early next week and close to -5C one week later, according to data from Montel’s Energy Quantified.

Rain and snow over the period could provide 2.5-5 TWh of potential hydropower output against a seasonal average of 7.3 TWh.

The hydrological balance – a measure of potential hydropower output stored in reservoirs, soil and snow – would likely drop from a surplus of 23 TWh compared to normal currently to 15 TWh by 14 January, according to EQ.

The prospect of a weakening hydrological surplus has buoyed spot prices from record low levels following unusually mild and wet weather earlier this year. Still, Nordic system prices have so far averaged this year at a 20-year low, below EUR 11/MWh.

Rising spot prices
The day-ahead contract was last quoted in a EUR 25-30/MWh bid-offer range at Nasdaq, up from the current level of EUR 23.91/MWh.

The apparent price increase comes as forecast suggest average wind power output will drop from 5.8 TWh today to 4.2 TWh on Thursday.

Meanwhile, the Week 2 power contract was last seen trading at EUR 37/MWh, suggesting a further increase in spot prices.

For the week ahead, Seland added: “Spot prices will surely rise very high in some hours, but on a system price level I doubt we will see average prices close to EUR 40/MWh before next Thursday at the earliest.”

Reporting by:
Olav Vilnes
11:23, Wednesday, 30 December 2020