Record Cold Nights Cause Spring Pinch for Nordic Power

From
  • Electricity prices on Nord Pool up by 34% y/y this month
  • Hydro reservoirs at lowest level since 2013 last week

Snow covers an outdoor cafe in Holmenkollen, Oslo, Norway, on May 11, 2017.

Photographer: Berit Roald/AFP/Getty Images

Nordic power prices soared as record cold weather in parts of the region delayed the seasonal melting of snow into water needed to generate electricity.

The coldest night on record dating back to 1859 this week helped electricity prices on Wednesday jump 34 percent so far in May from a year earlier and they are headed for the highest average level for the month since 2013 on the Nord Pool AS exchange in Oslo. The unseasonably cold weather is also driving up demand for the commodity.

”It’s what we call a spring pinch,” Sigbjorn Seland, chief analyst at StormGeo’s Nena Analysis in Oslo, said by phone. ”Unusually high spot prices and very low inflows due to the cold.”

Hydro producers know they can expect a big refill every spring when the previous winter’s snow starts to melt. The challenge is to leave enough room for the fresh water in the reservoirs while not emptying out last year’s supply before the new flows arrive. About half of the electricity in the Nordic region is generated by running water through turbines, with nuclear and renewable energy making up most of the rest.

While temperatures were colder in the north in absolute terms, they fell as low as minus 7.8 Celsius (18 Fahrenheit) during the night to Thursday at Visby airport on the Island of Gotland in the Baltic Sea. It was the coldest May in the area on record. Uppsala, a town just north of Stockholm, had its coldest May night since 1947 on Wednesday.

Plunging Reserves

The reservoirs in Norway, Sweden and Finland were last week at their lowest level since April 2013, according to the exchange. The lingering winter weather means that there’s as much as 100 terawatt-hours of water left to melt, according to Nena. That’s equivalent to about a quarter of the region’s demand when turned into electricity.

On Thursday Norway’s grid manager Statnett issued a warning for a tight power situation in the Ofoten area in the north of the country. Due to cold weather, reduced water levels and low inflows into reservoirs it would have to take measures to secure supply of power, it said.

There are two distinct outcomes for the months ahead. Warm weather with rapidly melting snow would force hydro generators to increase production to leave room in reservoirs for the new water, leading to lower prices. Alternatively, a slower process would allow producers to hold back supply and get more money for their electricity.

”Its a waiting game in the market right now to see if suddenly a lot will come at the same time or if it will trickle down gently into the empty reservoirs,” said Frank Larsgard, head of trading at Skelleftea Kraft AB, a utility in northern Sweden.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE