Aquila Capital Energy Market Update: Scandinavia set to import power as hot weather continues and prices surge

Please see below the latest market commentary from Jan Erik Schulien, Senior Investment Manager Hydropower & Head Energy Research, Aquila Capital, on how a sunny summer has consequences for Nordic winter power prices:

“Whilst most people in Scandinavia appreciate a so-far warm and sunny summer, power producers may get a reason to cheer over it also during the winter months. As precipitation has been low, both Norwegian and Swedish reservoirs are gradually decreasing and are now significantly below the seasonal norm. In line with this, producers have attained good control over their water, holding it back, given that there are no signs yet of a changing weather pattern.

“And whilst power generation numbers decreasing – the cable from Norway to the Netherlands exported only 30 GW in the first week of July as compared to 53 and 67 GW the prior two weeks – power prices for prompt delivery, the spot prices, have increased from 33.5 EUR/MWh in May to current levels above 50 EUR/MWh. The forward contracts are also being impacted, with basically now all monthly deliveries until the end of Q1 2019 trading at or above 50 EUR/MWh. The August contract, for instance, has seen a doubling in value in four months.

“Should the weather persist, the likelihood for imports from the European Continent to Scandinavia during the winter will be high. Accordingly, Nordic power prices are closing in rapidly to Continental European levels, and may even surpass them, to facilitate imports.

“Apart from good expected cashflows – the prices have moved up faster than volumes have fallen – this development demonstrates quite impressively two positive aspects; first, how power prices serve as a natural hedge to lower hydropower generation volumes; also, however, what an efficient tool market mechanisms and closely-linked trade between countries are for electricity.”

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