Nena News

NORDIC – Forwards hit fresh record lows on wet forecasts

 (Montel) Both the Q4 and 2016 contracts have hit fresh record lows on Monday amid wet forecasts, a low spot price and sliding coal and carbon markets.

The front-quarter contract hit a record low EUR 22.25/MWh earlier in the session and was last seen at EUR 22.35/MWh, down EUR 1.10, while the front year last traded at a fresh low of EUR 22.25/MWh, down EUR 0.42, after hitting 22.20 earlier.

Prices fell even more for contracts closer to delivery, with the front-week contract dropping 15% to EUR 17/MWh and October down 9% at EUR 19.10/MWh.

"The front has been pulled down by a weak system price and relatively wet weather forecasts,” said analyst Sigbjørn Seland at Nena.

Most of the forecast rain is set to be delivered in western and northern Norway where there was still excess capacity in the hydropower reservoirs, Seland added.

"The forecasts have gone from drier than normal to more normal over the weekend. Monday's spot was also lower than expected and this dampens prices," said portfolio manager Pål Johannesen at Bergen Energi.

Prices have fallen so much that there is large upside potential should the weather shift to a drier pattern, he added.

The market seems to be pricing in a very wet 2016 too, said Johannesen.

Different weather forecasts indicate 5.8-7.1 TWh of potential hydropower production from rain and snow in Norway and Sweden over the next 10 days, compared to a norm of 6 TWh, according to SMHI.

The current spot price out-turned at EUR 17.72/MWh and both players expected an unchanged or slightly higher price for Tuesday.

The day-ahead contract was last traded at EUR 17.80/MWh.

Weak coal, CO2
The long end of the curve was also affected by lower coal and carbon prices, with the short run marginal cost of coal-fired production last seen at EUR 27.11/MWh, down EUR 0.23 on the day, according to Montel data.

The 2016 coal contract in the API 2 window was last seen at a fresh record low of USD 49.20/t, down USD 0.45, on the Ice exchange, while the Dec 15 EUA contract was down EUR 0.04 at EUR 7.96/t.

"As long as the coal and CO2 prices are falling it is difficult to say where Nordic power prices will bottom out," Seland said.

Gert Ove Mollestad
10:52, Monday, 28 September 2015