Nordic Power Prices Seen Rebounding Strongly after 2020
Nordic forward power contracts are undervalued and likely to rebound strongly after 2020 after remaining low until the end of this decade, an Oslo-based THEMA consultancy said on Tuesday.
Nordic average power prices fell to a 15-year low of 21 euros per megawatt-hour (MWh) last year, hitting the revenues of Nordic utilities Fortum, Vattenfall, Statkraft and Dong Energy.
However, THEMA said medium-term forward prices have fallen over the last two years more than is justified by the drop in fuel and carbon emissions prices.
"Forward prices are currently below what we consider fundamentally correct," said THEMA's senior consultant Marius Holm Rennesund.
"This seems to be the result of utilities' willingness to hedge against even lower prices, and secure at least some revenues for the next years," he added.
Utilities lock in long-term power delivery contracts to reduce exposure to potential price falls in the future.
THEMA predicts Nordic average power prices rising from 18.9 euros/MWH in 2016 to 22.3 euros/MWH in 2020, compared with the 2020 forward power contract trading at 21 euros/MWh.
Nordic power prices are expected to get some support from Sweden phasing out four nuclear reactors, and Norway building new power interconnections to Britain and Germany.
However, plans to start a new 1,600-megawatt Olkiluoto-3 nuclear reactor in Finland by end-2018, and the addition of more renewables, will cap price gains.
"We expect power prices to recover post 2020, as the continental power balance weakens, the CO2 price increases, and new interconnectors come online," THEMA said.
It sees Nordic average prices surging to 38.7 euros/MWH by 2030 on a tighter power balance due to the phasing out of coal and nuclear power, particularly in Germany.
A stronger global climate policy, resulting in higher carbon emission costs could push Nordic power prices towards 50 euros/MWh by 2030, THEMA analysts said.
But a global economic recession, comparable to that of 2008, could lead Nordic power prices falling as low as 13 euros/MWh, they added.
"In the short term, the threat of a global recession and even lower power prices is real," THEMA said, citing signs of China's slowdown.
On Tuesday, China reported its exports in February falling 25.4 percent from a year earlier, the worst drop since May 2009.
(Reporting by Nerijus Adomaitis)
