Very Low Hydro-balance Ahead of Winter
Fokus week 39 2014
The deficit in the Nordic
hydro-balance is now approximately 19 TWh. Falling
marginal costs for coal and
gas power plants are, however, putting a damper on
the price increases.
Here and Now
Both the immediate and the more distant forward prices fell at the beginning of this week. Thus, it would appear
that the pressured Nordic hydro-balance will receive precipitation volumes
above the norm for this time of year
over the next ten days. The price falls
follow a week with dry precipitation
forecasts and very low volumes of actual precipitation energy. The total hydro-balance for Sweden, Norway and
Finland now has a deficit of approximately 19 TWh, which must be considered a critical level. The marginal costs
for the Nordic coal and gas power
plants are still on the decline whereas the CO2 quota prices remain stable.
Our Recommendation
The deficit in the Nordic hydro-balance has continued to rise and winter 2014/15 could be expensive in the
spot price market. Nevertheless, the
low marginal costs and latest precipitation forecasts have slowed down
further price increases in e.g. the
contracts for the coming quarter and
Q1-15. We recommend buying these
contracts and also consider the 2015
contract to have reasonable potential.
New Negotiations Between EU, Ukraine and Russia
According to Russia’s Minister of Energy, Alexander Novak, the EU, Ukraine
and Russia are set to meet for new
negotiations concerning Ukraine’s
gas debts on Friday. The negotiations
are being broadly interpreted as representing diplomatic progress in the
conflict between the two neighbouring countries. Especially in the European gas markets where the previous week offered substantial price
falls following the announcement
by the Russian Minister of Energy.
Yesterday, Russia’s Gazprom also announced that the state-owned company does not anticipate lower gas exports
to Europe in 2015 or markedly higher
prices in general.
The coal markets also experienced
price falls in week 38. The primary
driving force behind this development
has been announcements from China
that the country will ban the import
and sale of coal with high ash and
sulphur content from next year. This
announcement arrives at a time when
there is already an excessive supply in
global coal markets due to low growth
rates and the US shale gas revolution. However, the CO2 quota market
remains very stable at the moment.
The backloading plan and the trimmed
auction volumes would appear to
support the current price level.
Forward
Week 38
Week 39
Difference
ENOMOCT-14
EUR 35.90/MWh
EUR 35.80/MWh
EUR -0.10/MWh
ENOQ4-14
EUR 36.60/MWh
EUR 36.49/MWh
EUR -0.11/MWh
ENOYR-15
EUR 33.25/MWh
EUR 33.35/MWh
EUR +0.10/MWh
SYHELQ4-14
EUR 6.25/MWh
EUR 6.18/MWh
EUR -0.07/MWh
SYOSLQ4-14
EUR -1.20/MWh
EUR -1.20/MWh
EUR +0.00/MWh
Low Volumes of Precipitation Energy
Forecasts
Precipitation: The forecasts for
the next ten days in the Nordic
region promise slightly more
precipitation energy than the
norm for this time of year. The
largest volumes of precipitation energy would appear to be
arriving on Friday and Saturday
after which the scenario will
be relatively normal again. The
aforementioned development
is supported by the 30-day
forecast, which predicts a dry
week 40.
The water levels in the Nordic reservoirs are falling rapidly at this point in time.
In particular, this is due to the low volumes of actual precipitation. This week
the water reservoir levels are at 78.0% in Norway, 69.7% in Sweden and 59.7%
in Finland. The Nordic hydro-balance, including snow and soil moisture, is well
below the norm for this time of year, according to the Point Carbon Analysis
Institute. Yesterday, the deficit was 19.2 TWh compared to 14.9 TWh last week.
We expect the deficit to decrease this week.
Production Costs Continuing to Fall
Production and spot: During the
past week, the daily Nordic system average price was around
EUR 36.5/MWh on weekdays.
Thus, the price level in week
38 was higher than in week 37.
Prices are even higher at the
beginning of this week due to
lower wind power production
and colder weather.
The CfDs
The CfDs were stable in week
37. Many of the Nordic nuclear
power plants are now back at
full power and the utilisation
level in relation to the total Nordic capacity is now up to 79%.
Contact
CEO
Espen Fjeld
(esf@energisalgnorge.no)
The falling coal and low CO2 quota prices mean that the Nordic coal power plants are able to produce noticeably cheaper electricity than e.g. the gas
power plants. At this point in time there is nothing to indicate that this development will reverse. The latest growth data from China, USA and Europe is relatively moderate and the European coal stores remain full following a mild winter. Coal for delivery to Rotterdam in 2015 is trading at around
USD 76.50/tonne whereas the price for emitting one tonne of CO2 is around
EUR 6. In this connection there is no prospect of increases in any parameter.
Telephone: +47 45 20 76 36
Communicative Analyst
John Albertsen
(jhal@energidanmark.dk)
Telephone: 0045-8745-6948