Nena News

NORDIC – Front week soars nearly 20% on colder weather

(Montel) The front-week contract has soared almost 20%, over EUR 3, on Thursday amid weather forecasts confirming a return to colder conditions, while a strengthening fuels complex is supporting the long end of the curve.

The front-week contract last traded at EUR 22.75/MWh, up 19%, or EUR 3.65, on the Nasdaq Commodities exchange, while the front-month contract last changed hands at EUR 23.10/MWh, up EUR 1.70.

The front has been lifted by the EC 12 and EC 00 weather forecasts, which indicate a cold start to February and “it seems clear that we will have colder weather next week”, said Sigbjørn Seland, chief analyst at Nena.

However, the forecasts indicated a return to more normal conditions towards the end of the 10-day period, so the February contract could be priced “too high”, he added.

“Should the cold snap be prolonged well into February there is considerable upside potential in spot prices, which could average around EUR 30/MWh,” Seland said.

By comparison, the Nordic system price has averaged EUR 31.33/MWh so far in January.

“The front started rising on Wednesday on colder weather forecasts and we see the same tendency today,” added Arne Österlind, trader at Sweden’s Shepherd Energy.

Cold outlook
Different weather forecasts predict rain and snow over the next 10 days in Norway and Sweden that can potentially provide 6.1-9.4 TWh of hydropower output, compared to an average of 5.1 TWh, while temperatures in the Nordic region are set to range between -1.8C and 0.2C, against a norm of -2.4C over the same period, according to Sweden’s SMHI.

The long end of the curve is being supported by a slightly stronger fuel complex, both players agreed.

“It seems that oil, coal and gas prices bottomed out at the end of last week. This has lifted the long end slightly,” Seland said.

The Cal 17 API 2 coal contract closed at USD 39.91/t on the Ice exchange on Wednesday, the highest level since 11 January, while the Nordic 2017 power contract last went through at EUR 18.25/MWh, up EUR 0.25 on the day. The contact hit a record low of EUR 17.50/MWh on Tuesday.

The day-ahead contract had not traded to the time of writing but Friday’s system price could drop below EUR 17/MWh, Österlind said, while Seland estimated a spot out-turn down towards EUR 16/MWh, which compares to the current EUR 17.16/MWh.

Mild weather, some inflow to hydropower plants and reduced consumption due to the weekend would all weigh on the spot, they added, along with very high wind power production both in Germany and the Nordic region.

Nordic wind power generation is expected to average 8.5 GW on Friday, up from 7.6 GW currently.

Gert Ove Mollestad
10:24, Thursday, 28 January 2016