Fundamentals: Warmer Nordic temperatures and rainfall bring downside risk to power market

Christopher Somers

17-Feb-2017

Short-term electricity prices in the Nordic market are likely to fall over the coming week, with forecasts for temperatures well above seasonal norms as well as high precipitation and wind set to pressure day-ahead settlements.

High rainfall is currently forecast across the region for the coming seven days, which is likely to bring hydro stocks more closely in line with historic averages.

Drier weather across the region has seen hydro stocks languish over recent months, with stocks persisting at three-year lows since the beginning of November.

In week 6, combined stocks stood at just 47% of total capacity. This figure was 13 percentage points below the same week in 2016 and 4 percentage points below the 2015 equivalent, according to data from Nord Pool, the region’s dominant power exchange.

Norwegian stocks in particular were suffering, with potential power generation sitting at 41TWh at the end of week 6, down markedly from 52TWh in week 6 of 2016.

However demand is likely to be reduced during the coming week, with weather forecasts for above-average temperatures across the region. Temperatures will average as much as 8°C above seasonal norms until Monday, according to latest data from meteorologist WSI.

The Nordic power system price, an averages of all the individual price zones, has been relatively high since mid February, therefore downside potential is now high.

Wind

High winds are also expected, particularly across northern and central Norway. The resulting price impact could be limited however, as these areas have relatively low installed wind generation capacity.

The German spot price has fallen significantly over the past month on forecasts of milder weather and strong renewable generation.

And German spot prices are likely to fall further throughout the coming week, with high wind generation expected to pressure settlements. Wind is set to climb sharply towards the start of week 8, according to data from ICIS analysts.

Downward movement in Germany should further narrow the gap between the German and Nordic spots. Although the German market looks certain to continue to carry a premium, the fall in the spread should mean less Nordic power volume overall will flow into Germany.

The forward markets backed this. On Thursday the German front week held a rough €4.00/MWh premium over the equivalent Nordic product. By contrast the day-ahead premium has been around €10.00/MWh in recent sessions.

Nordic power futures found support towards the end of week 6 from strength on the European coal market.

Further upside for coal could imminently emerge, with rumours circulating that China may be planning to once again restrict its domestic production. Similar restrictions in 2016 were a major bullish sentiment driver for European coal prices.

The Nordic market is often more readily influenced by coal and the neighbouring German power market during the winter as a result of rising demand. christopher.somers@icis.com





READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?