7 Tips for Power Professionals for Spring and Summer 2021
From oversupply of power in the Nordics to new projects impacting prices and flows in Central and South Eastern Europe, we asked Insight by Volue analysts what’s in store for the spring and summer of 2021.
Below, Insight by Volue analysts share their best advice for this spring and summer.
#1 Oversupply of power in the Nordics
Looking at the Nordic power market, our experts see an extremely dynamic situation and are advising power professionals and investors to pay close attention.
On one hand, power prices in the countries neighbouring the Nordics are soaring and fuel prices are increasing. On the other, the Nordics are seeing an expansion of wind capacity on a scale never seen before.
This leads to a massive oversupply of power that needs to find its way out of the north. And look what we’ve got – the new interconnector from Southern Norway to the UK becomes operational right after the summer.
Power professionals should not only get a grip on fundamentals modelling but expect an impact on prices as a result of the new power exchange with the continent.
#2 Cross border capacity and flows in Central and South Eastern Europe
In Central and South Eastern Europe, the rapidly growing wind and especially solar capacity has been changing the hourly prices and has also meant decreased imports in the region.
This increase in renewables production has a direct impact on power flows.
Keep an eye on the cross border flows in Central and South Eastern Europe. There are several projects that will impact both prices and flows, as well as increase price convergence.
Since April, a new line connecting Slovakia and Hungary has increased the energy flow from Central to South Eastern Europe.
In May, the extension of the Single Day Ahead Coupling (SDAC) to Bulgaria is planned, while in June the DE-AT-PL-4M MC Interim Coupling Project will be launched.
#3 Low hydro production in the coming weeks
The dry and cold spring in parts of Central Western Europe and Italy is causing a slower than usual melting of snow. This is expected to impact hydro production and keep it lower than normal in the coming weeks.
We are following closely the developments in the weather and hydrology in Europe. My recommendation is for power professionals to use a service like Insight by Volue to stay up to date in this very dynamic situation.
#4 All eyes on Germany
There is one event on the power market horizon that will impact Europe and should be on everyone’s radar. In two years, Germany will shut down its massive nuclear capacity. In addition, it is already decreasing energy production from coal and lignite.
To compensate for this, the investment in new renewable energy has to accelerate. In the transition from stable base load production from nuclear and coal to non-controllable new renewables, the need for more flexible gas production will increase.
During the green transition, Germany will turn from a major exporter of power to a major importer of power. Many neighboring countries won’t be able to rely on German power in the future and will have to look for other sources.
The increasing oversupply in the Nordic countries might be one solution, especially with the launch of the stronger interconnectors to the UK and Germany already this year.
Market participants in the Nordics increasingly need to understand the German developments and vice versa.
#5 Volatility expected as a result of Redispatch 2.0 and EinsMan
Also in Germany, with the introduction of Redispatch 2.0 and the impact on the so-called EinsMan, our analysts highlight sensitivity that is relevant for most German utilities.
Watch out for the new bidding strategy for renewables that will be in place starting on 1 October 2021 as a direct result of the introduction of Redispatch 2.0 and the impact on EinsMan.
I expect to see increasing volatility in the spot and higher downside with wind above 30 GW.
#6 Improved supply margin on higher nuclear availability and new interconnectors
So far this year, the UK has seen numerous situations with tight supply margins on high demand, low renewable output, and reduced interconnector capacity, alongside limited nuclear availability due to planned outages. Looking at the remainder of 2021, the nuclear availability alongside increased import capacity from the North Sea Link interconnector (UK-NO2) from October will likely ease the pressure of price spikes such as those we saw this winter looking all the way to the end of Q4.
On increased supply, we should see less turbulence in the UK markets going forward compared to Q1 this year.
#7 LNG shapes gas and power markets in Europe
Even though renewables are growing fast, the phase-out of nuclear and coal plants leaves Europe hungry for gas in the years to come. The ongoing electrification of the household and transport sectors also leaves room for gas to continue as an important price setter in the electricity market. At the same time, domestic gas production in the EU is falling and Europe is increasingly dependent on pipeline and LNG imports.
LNG imports are increasingly shaping Europe’s gas and power markets, leaving regional markets exposed to global developments such as China’s growing demand for gas or hurricanes in the Gulf of Mexico that threaten LNG exports from the US. Keep an eye on the developments and interactions between power and global gas markets.
About Insight by Volue
Volue Insight is a leading provider of data and consulting services to the European energy market.
Volue provides customers with the insight they need to better understand the European power market by forecasting fundamentals and prices for the short, medium and long-term horizon.
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Tor Reier Lilleholt
