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Nordic power set for further gains ahead of winter – traders

(Montel) Nordic power futures looked set to extend contract highs ahead of winter amid tight hydropower supply and buoyant gas and electricity prices across Europe, traders said.

The nearest two front quarter contracts, the Q4 and Q1, already touched fresh highs on Wednesday, at EUR 87/MWh and EUR 85.50/MWh, respectively.

And the Nordic day-ahead price, for delivery on Wednesday, settled at its highest in more than 11 years, at EUR 108.83/MWh.

Elsewhere in Europe, power prices have also surged to record or multi-year highs this year amid soaring costs for gas, coal and carbon allowances.

But for the Nordic region, where hydropower accounts for a significant share of the power mix, traders said the current rally in the market reminded them of 2002, when prices spiked in the autumn due to very low reservoir levels.

“Back then we had weekly contracts at close to EUR 100/MWh, but it was only for a short period of 2-3 months,” said Per Arne Austli, power trader at Norway’s Tronderenergi.

This year, reservoir levels in southern Norway are at 20-year lows.

Nordic-German spread
In Germany, Europe’s biggest power market and where coal, gas and wind are more prominent in the power mix than in the Nordics, the Q4 baseload soared to a fresh record at EUR 150/MWh on Wednesday.

“What happens [in power markets now] is insane. We have never before seen quarterly contracts on German power at EUR 145-150/MWh,” said Austli, adding the German price levels indicated how high Nordic prices had to rise to attract imports to the region.

Sigve Ekeland, head of trading at power producer Lyse, said Nordic participants in general were concerned about the steep backwardation of the futures curve and prices rising towards levels seen in Germany.

“If the market had been more balanced, which would have led to higher futures prices, then we would probably have exported less power earlier and seen a more gradual price rise,” he said.

Higher risk
High prices also made it more expensive to operate in the market, with power exchanges and clearing houses demanding more collateral.

“Small power suppliers can run into problems since they have to put up more money in collateral on the power exchange while they still have to wait for payments from their customers. Traders with low equity and wrong positions in the market are also very vulnerable in periods where prices rise very fast,” said Austli.

Danish trader Nordstrom had to file for bankruptcy late last week after poor investments in the market.

Sigbjørn Seland, chief analyst at StormGeo, said the ascent of power prices across Europe was largely a reflection of the surging cost of natural gas. He said gas had now reached a level that was too expensive for many end users to handle.

“You will probably see some industries considering shutting output for a shorter or longer period. We have not registered any such announcement yet, but I believe [we] will see them soon,” said Seland.

Olav Vilnes
09:07, Wednesday, 15 September 2021