A steep increase in flows into Switzerland’s hydropower reservoirs over the past two weeks has potential to continue in coming sessions, further weakening Switzerland’s July ’17 wholesale electricity contract against France, Germany and Italy.
A combination of rainy weather and above-average temperatures favouring snow-melt is likely to boost hydro reserves in the short term, bringing them closer to average values, forecasts and figures show.
The front-quarter product also depreciated against France and Italy over the past fortnight.
However, higher uncertainty about inflow from melting snow in the longer term contributed to a rise in the Swiss Q3 ‘17 premium to Germany. This also reduces the potential for Switzerland’s front quarter contract to weaken considerably against its neighbouring countries in the near future.
Hydroelectricity is Switzerland’s single largest source of power production, meeting 59% of national output in 2016 according to data from the federal office of energy (BFE).
The role of hydropower is typically higher during summer months, when snow-melt replenishes stocks. The average contribution of the country’s 11GW installed hydro capacity was 67% in the months forming the third quarter between 2013-2016.
As a result, recent BFE updates showing that reservoirs were fuller than in 2016 somewhat relaxed the shorter-term outlook of hydro production.
Data released by BFE on Thursday put reservoir fullness levels at 20% at the start of week 22, almost double the 11% registered in week 20 and strongly up from the 15% of week 21.
The 2017 mark for week 22 was higher than the 2016 one, although still lagging more than 5 percentage points behind the long-term average (see graph).
Water flows into reservoirs increased at the end of week 21 thanks to a mix of higher precipitation and increased snowmelt, the federal office for the environment (BAFU) said on Thursday.
BAFU expects widespread rainy weather to stay in place until the end of the week. Higher river and lake levels have the potential to bring hydro stocks closer to the 12-year average value at the start of week 23. Above-average temperatures across the country between 2-6 June should also favour snowmelt flows.
Loosening hydro supply margins might increase Switzerland’s discount to France and Italy on July ’17 and Q3 ’17, as well as reduce its premium over Germany.
The Swiss discount to France – a major source of imports – on July ’17 reached €0.90/MWh on Tuesday, when the Swiss contract was last traded at €36.10/MWh according to market data available to ICIS. This compared with a marginal €0.10/MWh discount on 18 May.
At the same time, the Swiss front quarter moved from being more expensive than France to being cheaper, after last trading at €35.50/MWh on Tuesday.
Similarly, the Swiss discount to Italy – its largest net importer – rose for both contracts, while the premium to Germany only reduced on the July ’17 product (see graph). firstname.lastname@example.org