Nordic producers continue to lose millions
Fokus week 38 2015
The marginal costs for coal
and gas-based electricity
producers fell to the lowest
level in years during last
week. The prices in the
Nordic energy market are
being kept down by the
unusually strong hydrobalance.
Here and now
For the second week in a row the
Nordic system forwards have largely
moved sideways when it comes to
price. In the middle of last week the
prices increased due to dry weather
forecasts and a weakened hydro-balance, but the outlook changed on
Friday and Monday. The latest precipitation forecasts are nearly twice as
wet as the seasonal norm, which has
sent the prices down again. On Monday the Q4-15 contract closed at EUR
23.60/MWh, EUR -0.30/MWh above
last week’s level. The YR-16 contract
fell marginally by EUR 0.05/MWh and
is now down to EUR 23.40/MWh.
Our recommendation
With the water reservoir levels close
to the bursting point, there should be
a basis for cheap hydro-power during
the coming period. There are still a
few weeks until the water level traditionally peaks, at around 1 October.
However, the prices are already so
low that there doesn’t appear to be a
basis for any further large falls in the
Q4-15 or YR-16 contracts. We therefore predict that there will be neutral
developments for these contracts this
week.
Danish-German cable issues look set to continue
An electricity cable with an installed
capacity of 1780 MW runs between
the Danish DK1 price area and
Germany, intended to ensure that
Nordic electricity producers are able
to send electricity to the traditionally
more expensive German market. But
the cable remained closed to the
transmission of electricity for the
vast majority of last winter. This is
in spite of the fact that the Germans
could have used the cheaper Nordic
electricity due to the much higher
spot prices in Germany. Internal cable
issues in Germany are, however,
preventing Nordic electricity from
being supplied to Germany and,
according to the Swedish energy
market inspectorate El, these issues
are costing Nordic producers up
to EUR 300 million per year. Even
though the Germans have provided
assurances that work is being carried
out to improve the cable connections
for directing electricity around the
country, the recent statements from
the Danish TSO Energinet.dk indicate,
that there will likely still be problems
with exporting through the cable
over the next three to four years. As
such there is a risk of further loss of
profit for Nordic producers. Naturally,
Energi Danmark will monitor the
developments closely.
Forward
Wk 37 (EUR/MWh)
Wk 38 (EUR/MWh)
Expectation (wk 39)
ENOMOCT-15
20.55
20.70
↗
ENOQ4-15
23.30
23.60
→
ENOYR-16
23.45
23.40
→
SYHELYR-16
7.23
7.25
↘
SYOSLYR-16
-1.00
-1.80
→
Record low SRMCs for both gas and coal
Forecasts
Precipitation: The Nordic
weather forecasts have
become somewhat drier
throughout Monday and
Tuesday this week. Some
precipitation is expected
for the rest of the week but
from Monday high pressure
is expected and looks set to
send the precipitation volumes well below the seasonal norm. It is therefore
possible that the pressure on
the water reservoirs will ease
off slightly, if the weather
forecasts turn out to be true.
The summer’s downturn in the oil, gas and coal markets has had direct
consequences on gas and coal-based electricity producers in the Nordic
region. Marginal costs for these types of power plants have fallen noticeably and both are now at their lowest level in years. The anticipated
marginal costs for a coal power plant in 2016 have, during the last two
months, fallen by more than EUR 3/MWh and are now down to EUR
27.69/MWh. The falls in the SRMCs have taken place in spite of carbon
emissions having increased somewhat in price during the same period.
Production and spot: Wind
power production in both
Denmark and Sweden is expected to be above the norm
for the rest of this week but
with the prospect of high
pressure the level is expected to fall. The average daily
Nordic system price was EUR
19.87/MWh in week 37 and
it could very well increase
further this week.
Hydro-balance strengthens again
The CfDs
With a strengthened hydro-balance and full reservoirs, the Norwegian NO1CfD for YR-16 fell by EUR
0.80/MWh last week and is
now at EUR -1.80/MWh. The
Finnish YR-16 CfD has not
changed much and is now at
EUR 7.25/MWh.
The Nordic hydro-balance has been at the highest levels measured for
more than a decade several times during spring and summer. During
August the large balance surplus did, however, fall slightly. According
to the analysis institute Nena, the wet weather forecasts during the
previous weekend have, however, sent the balance up to a surplus of
more than 21 TWh. The unusually high balance is contributing to putting
additional pressure on the Nordic reservoirs, which are expected to be
more than 90% full in a couple of weeks, when the water level is expected to peak.
Sales Manager
Peter Lehm
([email protected])
Telephone: +45 8742 6720
Communicative Analysist
Karsten Sander Nielsen
([email protected])
Telephone: +45 8745-6948