Power Price Forecasting: Start With the Weather

In the future, precipitation, wind, and temperatures will be key in determining power prices. We talk to Tor Reier Lilleholt, Head of Analysis at Insight by Volue, about the importance of harnessing weather data and how his team measures the pulse of the market.

Power price forecasting weather

For someone who has made a name for himself as a top analyst for the Nordics power market, Tor Reier Lilleholt talks a lot about the weather.

“In Norway, you have many mountains, so when it rains you can see the inflow in the rivers one hour later,” he says. “But in Sweden, where you have forests covered in moss, when the rain falls, the water gets absorbed in the ground and doesn’t run into the rivers right away.”

Through the years, Tor Reier has become an expert in temperatures, water flow, and hydro reservoirs because in his native Norway 90% of the energy comes from hydropower.

The more renewable energy we add to the energy mix, the more we'll rely on regional knowledge and forecasting like this. Precipitation, wind, and temperatures will play an ever-increasing role in determining power prices. Weather data will become crucial.

“Big hydro producers such as Statkraft take snowfall seriously. In winter, they go out with snowmobiles, inspect the snow and calculate the energy that’s in there. You have snow that is light and with no energy, and heavy snow containing a lot of water that will give you more energy.”

Tor Reier’s team combines weather data, digital technology, and deep industry knowledge accumulated over five decades to provide analytics and weather models for companies such as Statkraft.

We can already predict this summer and autumn in terms of hydropower. We can estimate what is in the mountains and in the reservoirs and we know how much energy will be produced.

Tor Reier Lilleholt Head of Analysis at Insight by Volue

In the app that Tor Reirer’s team is building, the weather fundamentals are a major element.

“We start with the raw data from the National Weather Service in Redding and create our own forecast.”

As a next step, the app transforms the weather forecast into energy.

“We tell the client that, for example, 1mm of rain in Kitzbühel in the Alps will give them a certain amount of energy. We transform the temperatures into consumption, and the meter per second wind speed into the production of wind.”

With over 150,000 curves, the Insight by Volue API contains a lot of data.

But with renewables such as solar and wind, forecasts can be accurate only up to a week. And within that week, variations are extreme, up and down every hour.

That’s why Volue analysts study closely weather trends and patterns.

Unforeseen weather can also affect the power market.

Long-term energy market forecasts

Things were a lot easier when power was 100% controllable and prices fairly stable and easy to predict.

But as Europe and the rest of the world switch off energy from coal, nuclear and gas, and welcome hundreds of thousands of volatile renewables, the power market is changing for good.

Renewables such as solar and wind are driving the market up to a week ahead, while hydro up to a year ahead. But for a long-term price forecast, analysts are still looking at fuels.

Power price forecasting

“Coal and gas will remain important in Europe because even though we are transitioning to renewables, we still need fuels to cover all the consumption.”

Long-term, this also becomes about politics and CO2 emission targets.

The EU changed their CO2 emission target this summer from 40% reduction to 55% reduction. This means that Europe will need more renewables as it will need to shut off coal and lignite production faster. Wind and solar will explode.

Tor Reier Lilleholt Head of Analysis at Insight by Volue

Germany is a case in point. In two short years, it will shut down 60TWh worth of nuclear production and decrease energy production from coal and lignite.

From a major exporter of power, it will turn into a major importer of power. It will make massive investments in wind and solar, but also in gas which is flexible enough to help balance the non-controllable new renewables. New technologies like batteries and hydrogen can help balance the market and perhaps reduce the use of gas in the next phase.

The power exchange lines in Europe will also affect power prices.

Tor Reier’s team now has a forecast until 2050. The 100-page paper explains in detail the expectations for the European power market from the point of view of investment analysis.

“We have forecasts for all geographical areas in Europe with all time horizons – from 15 minutes Intraday forecasts to 30 years of investment analysis. You can check the analysis on our web pages or feed the data into your own models through a modern API. Short-term, you will know what you need to produce in the next hours. Long-term, you will know what will happen all the way up to 2050. In the green transition, we’ve got the power industry covered.”

Questions regarding our power market forecasts?

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