Lowest Swiss Water Levels in 13 Years Set to Boost Power Prices

The lowest hydro reserves in 13 years in Switzerland, which generates more of its power using water than any other non-Nordic European country, may boost prices in neighboring France, Germany, Italy and Austria.

Hydro levels dropped to 9.2% full in the week through April 8, the least since 2000, according to data from the Swiss Federal Energy Office. In two weeks time, levels of water and snow available to generate electricity in the Alpine region may fall to 5.9 terawatt-hours less than normal for the time of year, according to Markedskraft ASA data on Bloomberg.

Dry, cold winter weather has depleted reservoirs, boosted demand for heating and driven prices higher in Switzerland. January precipitation was 58 percent less than a year earlier in the nation and 16 percent lower in the Alpine region, according to CustomWeather Inc. data on Bloomberg. Last month was Switzerland’s coldest March in 26 years, according to the country’s national weather service MeteoSwiss.

“A shortage of hydroelectric power requires more thermal production, which may in turn lead to higher power prices,” Chris Rogers, a senior analyst in London at Bloomberg Industries, said in an e-mailed research note.

Europe produces about 1.6 percent of its power from hydro while in Switzerland water meets more than 11 percent of electricity demand, according to data from Eurostat. Prices in neighboring Austria, France, Germany and Italy may feel the impact of low hydro levels as Europe moves toward a single integrated market by 2014.

Price Premium

The next-week peak contract in Switzerland, for power supplied between 8 a.m. and 8 p.m., was trading at 54 euros ($70.64) a megawatt-hour at 11:30 a.m. Geneva time, a premium of 8.75 euros to the equivalent contract in Germany, according to broker data.

Higher electricity prices “encourage power producers to market the energy today instead of storing the water until next winter,” Andreas Meier a spokesman for Alpiq Holding AG (ALPH), which operates hydro stations in Switzerland, Italy and Scandinavia, said by e-mail.

Kraftwerk Hinterrhein AG’s 197 million cubic meter Lago di Lei and Forces Motrices Hongrin Leman SA’s Hongrin lake in Switzerland have been drained for maintenance for the first time in 50 years and 40 years respectively, according to the companies’ websites.

Low Point

Hydro reserves usually reach their lowest point at the end of April and then start to increase as snow and ice melts, data from the Swiss Federal Energy Office show. The amount of power demand and rainfall in April will be key for short-term prices across the region, according to Rogers.

“If there is a drought this spring or summer it would affect refilling of hydro reserves because nuclear and coal plants are river-cooled and the water may be used rather than stored,” he said in an interview.

The impact of low hydro levels may be felt more acutely as Germany’s phase-out of nuclear plants decreases back-up capacity. Availability of Electricite de France SA’s nuclear reactors in France is currently about 75 percent and the company said in February that its nuclear outage program will be “busier” than last year, with seven 10-year inspections compared with six in 2012. Output in 2012 fell to 405 terawatt- hours from 421 terawatt-hours in 2011.

German Renewables

Germany is getting more power than ever before from sources dependent on wind and sunshine. Solar and wind generation has increased 80 percent in the past three years, damping prices on sunny, gusty days and boosting them when natural gas or coal plants are required to offset shortfalls.

“I don’t think Germany will see any supply problems this summer,” Arne Oesterlind, Stockholm-based manager of the Shepherd Energy Fund, said on March 27 by phone. “It’s the first summer we will see with such high renewable energy capacities installed. There is no precedent.”

The low levels of hydropower may prompt the Alpine region to import excess power from Germany, Oesterlind said. Germany had record net electricity exports of 22.8 terawatt-hours last year, almost four times more than in 2011, the German Federal Statistical Office said on April 2.

The biggest buyers of German electricity were the Netherlands with 22.6 terawatt-hours, Austria with 15.9 terawatt-hours and Switzerland with 12.7 terawatt-hours. Germany meanwhile imported from France, Denmark and the Czech Republic.

Nordic electricity prices climbed for 11 days through March 27, the longest period of gains for a month-ahead contract since at least 2003, as water supply for hydropower producers fell to its lowest in two years. Hydro levels are forecast at 22.4 terawatt-hours below normal in two weeks, compared with 24.3 terawatt-hours below normal today, Markedskraft data shows.

Cold Weather

Norwegian grid operator Statnett SF said on April 4 that the hydro levels were unusually low, limiting the system’s ability to react to unplanned power outages in two out of its five market areas.

“Snow-melting usually starts to increase water reservoirs at the end of April,” Per Lekander, a Paris-based analyst at UBS AG, said in an e-mailed report on April 5. “With cold weather continuing throughout northern Europe, we see the possibility that this might be delayed by a week or two.”

To contact the reporters on this story: Rachel Morison in London at rmorison@bloomberg.net; Torsten Fagerholm in Helsinki at tfagerholm@bloomberg.net; Julia Mengewein in Frankfurt at jmengewein@bloomberg.net

To contact the editor responsible for this story: Rob Verdonck at rverdonck@bloomberg.net

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