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Highest January electricity price for eight years

Photo: Entelios

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The electricity price continued upwards in January.

Little snow in the mountains and high prices for German coal power are two of the explanations.

The electricity price for January was well over €50/MWh for the Nordic region as a whole and ended at €53.78/MWh. Only twice in history have we seen higher prices than this, namely in 2011 and 2003. The January price for 2019 was 70% above average for January over the past five years.

What is the explanation?

Little snow in the mountains explains some of the increase Part of the explanation lies with there being little snow in Norwegian mountains.The water reservoirs in the Nordic countries have a somewhat lower filling level than is usual at this time of the year, but it is the lack of snow that is decisive here. The low snow levels in the mountains mean that the power plants in the Nordic region have to save on the water until the summer. Thus, the Nordic countries must import more and export less electricity than normal.

Saving water means higher electricity prices, and there is little to suggest that this resource balance will improve in the short term. The weather forecast for February shows dry and cold, without new significant snowfalls – which would turn into welcome melt water when spring comes.

The electricity price in Germany explains more

But our electricity prices are obviously about more than the conditions in the Nordic countries – they are also closely related to the price level in Europe. And there is one country that clearly means the most to us: Germany. This is the Nordic region’s most important trading partner when it comes to exchanging electricity, both import and export.

The electricity price in Germany therefore has a direct impact on the electricity prices in the Nordic region.

In Europe, and as far as the rest of the world is concerned, coal power is essential to meet the demand for electricity. Coal power producers have two major costs: the raw materials themselves and emission rights (the CO2 price).

And since both coal and CO2 emissions have become much more expensive in recent years, electricity prices have also gone the same way.

Uneasy times, both politically and economically

Commodity prices often move in super cycles – in step with political shifts and economic fluctuations. Right now, optimism in the market is dampened by trade war, Brexit and weaker signals from the world economy. The result is that more people expect weaker growth going forward.

In the opposite direction, prices for CO2 emission quotas have risen by over 400% over just eighteen months. At New Year, we received a new reform in the market for emission rights, which aims to further raise the price for emissions. When the raw material price of coal is already relatively high, this also raises the cost price for producing power from coal power.

The result is marked directly in your wallet.

So where does the road lead in the power market? In the short term, we see that the weak resource situation in the Nordic countries makes the European prices have a greater influence here – and they are already high. Price developments in the future are dependent on the major world events, and right now it is more difficult to deliver secure predictions.

Source: Entelios / Norway Today

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