Monthly European hydropower update: Above average rainfall set to further boost Italian run of river and reduce Spanish drought risk
Above average rainfall headed for South Europe is likely to reduce drought risk in Spain and could further increase Italian run of river production, which has already been boosted by wet weather.
The Balkans, where reservoir levels are already reaching the maximum of the range experienced at the same time 2018-2021, are also set to receive above average precipitation, which could pressure prices.
The outlook for the Nordics is drier, raising the possibility that recent increases in reservoir stocks could run out of steam.
- In the Nordics, reservoir levels have increased over the last few weeks, bringing hydro stocks closer to parity with 2015-2021 average. Stocks have gone from 21% below the historic average in week 18 to just 1% below in week 21. Reservoir stocks have also put further ground between 2023 and 2022 levels, going from 5% up on 2022 levels in week 18 to 15% up in week 21.
- Drought has retreated from parts of South Europe over May as above average precipitation offered relief to parched rivers, particularly in Italy, and could feed into reservoirs.
- However, reservoir stocks in the region have fallen further behind the historic average, going from 4% below the 2015-2021 in week 18 to 5% below.
- The Balkan markets, which have largely remained untouched by drought so far this year, have enjoyed strong run of river production in recent weeks.
- Aggregated Balkan stocks remained above both 2022 and 2018-2021 average levels, although on an individual level Bulgarian stocks remained below both 2022 and historic average levels and Greek stocks remained below the historic average.
- Wet weather has brought relief to parched Italian rivers, with run of river generation more than doubling month on month. Run of river production averaged 4.7GW during May, compared with 1.9GW in April. Although this brought Italian run of river closer to the 2016-2021 average for May, it still fell about 500MW short of this historic average.
- Above average precipitation for the time of year is set to continue, according to forecaster MetDesk, with rainfall over Italy and Spain more than 40% above seasonal norms throughout the remainder of week 22, week 23 and, for Spain, week 24.
- According to the latest data from the European Drought Observatory (EDO), which covers the first ten days of May, drought risk in South Europe was mostly confined to the Iberian peninsula. But parts of Spain experienced heavy rain in the last few days of the month and the further heavy rainfall forecast is likely to reduce drought risk.
- MetDesk did warn in their summer forecast that risk of a heatwave in late June could not be ruled out, but as of yet temperatures in the region are forecast in line with or only slightly above seasonal norms up to week 24.
- Reservoir levels are substantially above the equivalent week during 2022 in Italy, France and Spain, and only Spanish levels are substantially below the 2015-2021 average.
*Italy, Spain, Switzerland and France
- Italian reservoir levels were slightly below the 2015-2021 average. Market participants said improved Italian reservoir levels compared with 2022 were partially due to conservation of water and did not warrant a reduction in prices.
- But should precipitation continue this could erode risk currently built into summer delivery products.
- Aggregated reservoir levels in the Nordics were up 15% on the same time in 2022 and only 1% below the 2015-2021 average in week 21. This represented an improvement of six percentage points compared with the delta to the historical average for week 20.
*Finland, Sweden and Norway
- The EDO had indicated some recovery in soil moisture at the beginning of May, with drought receding somewhat, but an upcoming period of very dry weather could reverse this trend and is potentially bullish for prices.
- MetDesk projected precipitation at least 40% below normal in Sweden during the remainder of week 22 and week 23 and 20-40% below seasonal norms in Finland and Norway in week 22, turning to at least 40% below for Norway in week 23.
- Overall, aggregated Balkan reservoir stocks remain close to the maximum for 2018-2021 levels, and filling rates show little sign of slowing down.
*Romania, Bulgaria, Serbia and Greece
- Higher than average precipitation forecast through the remainder of week 22, week 23 and week 24 signals the trend is likely to be ongoing, although MetDesk’s forecast confidence is reduced for week 24.
- Flows on the Danube River at the point at which it enters Romania are 28% up on the multiyear average for May, which is an important indicator of hydropower production for the region as the river feeds into the Iron Gate complex, which supplies both Romania and Serbia.
- Bulgarian stocks remain below seasonal average levels but have closed the gap significantly since week 18, when stocks were 11% below seasonal norms. Reservoir levels are now only 6% below the 2018-2021 historic average.
- Increased reservoir stocks compared to the previous year have weighed on power contracts for summer delivery, as regional utilities are expected to use stored hydropower to rein in any price peaks over the third quarter.
- Further precipitation forecast in South Europe could erode risk if run of river and reservoir levels are boosted significantly.
- Recovery in Nordic reservoir levels is bearish for prices for the time being, but a dry spell could halt the trend.
- Balkan reservoir levels remain significantly above the historic average, weighing on products for summer delivery and the trend is likely to continue as further above average rainfall is incoming.
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