Pronounced Cold Wave Expected to Push Up SEE Power Prices
Date: January 13th 2021
Author: Tanja Srnovršnik
Temperatures well below the long-term average will affect the growth in electricity prices in South East Europe (SEE) in the short term, said Domen Dimc, the head of electricity and natural gas trading at Slovenia’s Petrol. The pronounced cold wave is expected to last until 20 January, added the market analytics department at the Slovenian power utility, Holding Slovenske elektrarne (HSE). Meanwhile, Montel’s Energy Quantified (EQ) estimates that slightly higher than normal hydropower production in Romania and Serbia, as well as wind power production in Romania, will limit the price spikes due to low temperatures in SEE next week.“This year's winter has certainly brought the low temperatures expected for several years and, after a long time, a ‘real winter’. The patterns at the North Pole predict the continuation of various weather events during the winter and the possibility of further incursions of warm air into the polar vortex, which usually moves extremely cold air towards Asia and Northern Europe, and occasionally to the eastern part of the USA,” Dimc told Energetika.NET.
Matej Pirnat, head of the market analytics department at HSE, explained that the temperatures in the coming days will “fall the most during the night hours, during which we expect growth in consumption due to consumption by heat pumps. In the following days, it will cool down in the entire region, and in some places the temperatures will be as much as 10°C below the long-term average in certain hours, which will certainly greatly increase electricity consumption.”
According to current forecasts, the pronounced cold wave is expected to last until 20 January, “when temperatures are expected to gradually rise to the long-term average. In February, temperatures are expected to be slightly above average in continental Europe, especially in the Balkans and Turkey,” added Pirnat.
Extreme electricity prices possible
Therefore, while at the beginning of this year the SEE region and consequently Slovenia received a larger amount of precipitation, which limited the possibility of rising electricity prices – regional prices even traded below the Austrian or German prices – a “rapid reversal of the situation is expected, as no new precipitation is in sight in the region, while temperatures will fall well below the long-term average by the end of this week. This will certainly affect the growth of electricity prices in the region,” said Dimc.
Dimc added that in the short term (with a drop in hydrology and wind production and below-average temperatures) even extreme levels of electricity prices can be expected.
The day-ahead baseload power prices on the Hungarian HUPX power exchange for delivery on 13 January amounted to 59.79 EUR/MWh, while on the Romanian OPCOM exchange they amounted to 59.98 EUR/MWh. Prices on the Bulgarian IBEX power exchange amounted to 56.58 EUR/MWh, on the Serbian SEEPEX power exchange they amounted to 67.04 EUR/MWh, while on the Slovenian BSP power exchange they reached 66.95 EUR/MWh.
Meanwhile, EQ expects electricity prices in SEE to average between 55 EUR/MWh in Bulgaria and 58.57 EUR/MWh in Slovenia this week.
“Hydropower and the wind power production in Romania will be a bit higher than normal next week, limiting the price spikes due to the low temperatures. We believe that the spot prices for next week (3) will be lower than those traded at the start of this week (2),” said Eylert Ellefsen, senior analyst and hydrology expert at Montel’s Energy Quantified (EQ), on Tuesday.
Gas prices in Europe are also rising, both as a result of rising energy needs due to low temperatures in Europe and due to extremely high prices of liquefied natural gas in Asia, mentioned Pirnat.
“We expect the highest growth mainly in gas prices for delivery in the winter months, then prices should slow down,” said Pirnat.
Very diverse developments expected in SEE in the next two months
According to current patterns and long-term forecasts, Dimc estimates that “events in the region will be very diverse during January and February.”
“In the most positive case, prices may again exceed those of all of the neighbouring countries, which means that the region will again import electricity from Italy, Greece and the northern countries (Austria, Slovakia),” said Dimc, adding that given the current situation on global exchanges, a further increase in the price of energy sources can be expected, which will help increase the price of electricity for some time to come.
“As a rule, most price fluctuations/shifts in the energy markets occur in the winter, and we expect the same this year,” added Pirnat.
Ellefsen added that the movements in the fuel markets and the associated short-run marginal costs (SRMCs) have been “slightly bullish since the New Year.”
“It is estimated that the SEE spot prices for January 2021 will be 10-15 EUR/MWh lower than those traded just before the New Year. The February contracts in the SEE area are currently trading at about 67 EUR/MWh, which seems to be too high compared to the current spot price level for January,” concluded Ellefsen.