Analyst: Forward market underpriced

The coming quarters on the Nordic power market are underprices, according to an analyst from Wattsight, who projects prices around 5 EUR/MWh higher than what the market is trading at today.

The power forwards on the Nordic power market for the coming quarter and further on are underpriced. This according to analyst at analyst agency Wattsight, Tor Reier Lilleholt, who said this at a conference by energy news site Montel in Oslo Thursday. Lilleholt estimates that the Nordic system price will average 41.10 EUR/MWh in Q4-19 and 46.60 EUR/MWh in Q1-20. This is around 3 EUR/MWh and 5 EUR/MWh higher than the price level the contracts for these periods are currently traded at on the forward market. Regarding the more distant contracts, Wattsight’s analyst regards the market as even more underpriced.

Wattsight mentions rising demand from industry, the oil sector and data centers as one reason while prices would end up higher than what the market currently expects. Furthermore, further delays to the commissioning of the Finnish Olkiluoto 3 nuclear reactor and the start-up of the Danish-Dutch COBRA cable are reasons, why the market is underpriced.

The Nordic hydro balance has improved recently and is now just in a marginal deficit. However, according to Lilleholt, this is not enough to make Wattsight change their projections.

Furthermore, it is Wattsight’s estimate that the spread between the Nordic and the German power markets is currently too wide. The German Cal-20 contract is currently around 13.50 EUR/MWh above the price of the equivalent Nordic contract, and Lilleholt does not see any reason why this gap should widen. As a comparison, the spread has been much smaller so far in 2019. The Nordic system price has so far averaged 39.95 EUR/MWh in 2019, while the German average for the same period has been 38.23 EUR/MWh.