Warm winter eliminates threat of electricity shortage and high prices

Reservoirs full and electricity prices have come down

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About two months ago there were warnings of a possible electricity shortage that could hit Finland in mid-winter, coupled with a high market price for electricity. The fear was based on a record-dry summer and the consequent depletion of reservoirs in the Nordic Countries.
      Such fears have been eliminated by continued warm conditions and rain. So little electricity has been consumed in the Nordic region, and rainfall has been so heavy that reservoirs in Norway and Sweden have been filling up at record rates, and are soon expected to be at normal levels.
     
Finnish lakes and watercourses have also been replenished, increasing the availability of hydroelectric power in this country, even though potential hydroelectric power cannot be stored in Finland quite as efficiently as in the mountain reservoirs of Norway and Sweden.
      "Fears of an energy shortage can be forgotten for this winter", says Mikko Lepistö of the energy market consulting firm Energiakolmio.
      Concerns about record-high electricity prices have also receded. Market prices have come down rapidly, and there is suddenly pressure building for lower consumer prices.
      "I would say that in consumer prices we are in a fairly good balance, when looking at the prices of Nordic futures. There is probably not room for price cuts yet, but short-term pressures for increases have certainly eased", Lepistö says.
     
Spot prices in Nord Pool have come down considerably since last August, when they were at record levels. A megawatt hour of electricity, which had cost more than EUR 70, now goes for about EUR 30.
      Futures prices have also declined sharply. Electricity futures for delivery next year have gone down from about EUR 60 to less than EUR 40 per megawatt hour.
      Lepistö notes that an improved water situation is always first reflected in the day's spot market price, which goes down faster than the price of futures. He believes that the spot prices are now so low that a sudden cold snap would elevate them quickly, which would also be reflected in futures prices. However, the good water situation would have a moderating effect on the increase.
     
Compared with last year, relatively large amounts of electricity are being generated in coal and peat-fired power plants. Such production has been profitable in spite of the fact that the price of carbon dioxide emission rights are included in the costings.
      The costs of emission rights have plummeted, after news came out last spring that emissions rights had been allocated in the EU far beyond what would have been needed.
      So although there is plenty of cheap hydroelectric power available, the low price of emission rights makes other methods of production currently more profitable. This helps conserve water supplies, and to further decrease the market prices of electricity.


Previously in HS International Edition:
  Fortum cancels rate hike owing to "sudden decline in wholesale price" (29.11.2006)

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