Increased German electricity export capacity bullish for Nordics

11 July 2017 16:24 Source:ICIS

A recent deal to increase available cross-border transmission capacity between Denmark and Germany could be “very bullish” for Nordic power prices in the coming years, according to market participants.

The Danish and German governments reached an agreement in June to increase available transmission capacity between the two countries over the years to 2020 (click here to read story).

One source at a Nordic trading house said that the programme could begin to have a discernible impact on Nordic prices from 2018.

“It should have a great price impact from next year,” he said. “It will be very bullish for the Danish area price.”

Capacity has been restricted in recent years by increasing grid congestion as improvements to transmission infrastructure have failed to keep pace with the rapid deployment of wind capacity in Denmark and northern Germany.

But the new deal stipulates a minimum level of capacity that must now be made available at the border in order to galvanise the development of grid infrastructure development (see additional details below).

A second trader agreed that the increase would be a strong driver for Nordic prices.

“This agreement is definitely bullish compared to the expectations of most analysts last year [who] expected very low export capacity from Denmark to Germany until 2025 or so,” he said.

“The day-ahead market will definitely be supported. The effect could be up to €1.00/MWh on the system price and more in DK1 (one of the two Danish pricing zones).”

Technically, total cross-border transmission capacity between the two countries currently stands at 1.5GW in the direction of Denmark and 1.8GW into Germany.

This is set to increase by the mid-2020s with the construction of a new 1GW interconnector, which was approved by the Danish energy ministry in February.

German premium

Spot and forward power prices indicate that electricity is highly likely to be incentivised to flow from Denmark to Germany.

The German day-ahead contract for Tuesday as assessed by ICIS held a comfortable €10.95/MWh premium over the Nordic system price, meaning the German product was 40% more expensive.

The German market holds a substantial premium to the Nordic market across the forward curve.

The German Year 2018 contract was valued by ICIS €5.20/MWh above the Nordic equivalent on the Nasdaq exchange on Monday, while Year 2019 delivery sat €5.80/MWh above the Nordic product.

Net electricity flows from Denmark to Germany have been unusually high since March when German grid operator TenneT was forced to ease transmission restrictions due to an ongoing outage at the 1.4GW Brokdorf nuclear plant.

Nordic flows

There is currently some disagreement among market participants about the impact of the transmission deal on flows between the Nordic price zones.

The source at the trading house said increased exports to Germany could shake up net power flows between the southern Nordic zones.

“We’re expecting around an extra 1.5TWh/yeah of exports from the hydro areas as a result of the deal, which gives you an idea of how much [it] affects the entire Nordic power balance,” he said.

“The big change will be in flows from Sweden to DK1 (…) they will be more certain with the deal.”

But the second trader said that the agreement could lead to oversupply in Denmark if physical capacity failed to meet the level stipulated by the deal.

“The interesting thing is the counter trade that will be done (…) because most believe the physical flow cannot be so high,” he said. “This means either that producers in DK1 or Norwegian hydro producers will need to adjust their production down.”

“Whether this happens in the intra-day market or with special agreements is unclear.” christopher.somers@icis.com


Denmark-Germany capacity increases

Minimum available cross-border capacity between Denmark and Germany will be incrementally increased in the coming years.


• July 2017: 80MW

• November 2017: 400MW

• Start of 2018: 700MW

• April 2019: 1GW

• Start of 2020: 1.1GW

By Christopher Somers