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Nordic price differences may last to September – StormGeo

(Montel) The large price differences between the Nordic region’s spot power market bidding zones will likely continue until September, a StormGeo analyst said on Tuesday.

Healthy hydropower resources in the north of Sweden and Norway and low stocks in southern Norway were the main reasons, chief analyst Sigbjørn Seland told Montel.

At the end of the current week, the northernmost price areas (NO3, NO4, SE1 and SE1) would have a total hydrological surplus of almost 8 TWh, while the more southerly NO1, NO2 and NO5 would have a 14 TWh deficit, he said.

Grid capacity between the areas was too low to erase the difference, he added.

The hydrological balance, a measure of energy stored in soil, snow and reservoirs, is a key price driver in hydropower-dominated Norway and Sweden.

Spot power in the southernmost NO2 area has averaged EUR 140.39/MWh so far this year, but NO4 at the opposite end of the country has had a price of only EUR 25.97/MWh.

While prices were set to stay at record high levels in southern Scandinavia this spring and summer, also influenced by high prices in the rest of Europe, northern parts of the region could see prices at or close to zero for several hours, Seland said. “The picture gets stronger with each passing day,” he said.

In addition to the strong hydrology, supply is being boosted by new wind farms coming online in northern Sweden and Finland. On top of this, the Finnish nuclear reactor Olkiluoto 3 (1.6 GW) is due to soon start test production.

Possible price collapse
These factors could cause a collapse in prices similar to the one in 2020, when Nordic spot power prices fell to their lowest level since the turn of the century amid wet and windy weather.

However, this year that would only apply to the northern regions and not further south, Seland said.

“There has been a strengthening of the hydrological balance in southern Norway, too. But a similar situation as in the north with very low prices is completely out of the question,” he said. 

EUR 120 price difference 

He added that a price difference of around EUR 120 between northern and southern Norway could last until September.

The situation in the south means these price zones are more closely linked to the rest of Europe’s power prices and especially the German off-peak price, which is usually close to the marginal cost of coal-fired production. This cost is currently around EUR 112/MWh for the second quarter.

The large area price differences may also have an “unusual” effect on the region’s benchmark system price, which has historically been correlated with the price in southern Norway, Seland said.

“It is highly probable we’ll see periods with very low system prices due to the area prices in the north. At the same time prices in southern Norway, southern Sweden and Denmark could be well over EUR 100/MWh,” he said.

“We have already seen this trend on very windy days this winter and it will probably be normal when we come to the summer. This will be a new and very unusual development for the system price, and a completely new experience for the Nordic power system.”


Reporting by:
Gert Ove Mollestad
14:56, Tuesday, 1 February 2022