Continental power prices continued the wild swings seen since at least September last year, which they have never quite recovered from. While gas prices are held far above historical averages by heightening tensions on the Russia-Ukraine border, increased renewable generation on the back of windy weather occasionally drives the German baseload price even lower than the Nordic system price.
The German power quarterly forward generally trades at a premium to the spot price, indicating market expectations that the power price will increase with time. This premium was greatest during the spot price crash following the December 21 peak. By contrast, the Nordic power quarterly forward trades at a discount to the system price, reflecting the outlook that wetter weather and rising renewable generation will drive marginal costs for energy ever downward. This discount has been especially large since the new year, with Nordic spot power prices being driven less by renewable generation and more by high EU-wide fuel prices.
Despite the tapering February system price, a sign that the trend may be reversing comes from Statnett – to offset recent high income from record high electricity prices and likely also to keep its 2022 income under the estimated permitted income of NOK 10 billion, the Norwegian grid operator will not charge consumption tariffs from April to end 2022, foregoing grid fee income of NOK 4 billion, close to 40% of its total annual revenues. Does this forward-looking adjustment herald an end to the regime of low Nordic electricity prices sooner rather than later?