Limited production, high consumption and low price sensitivity caused winter price peaks
(4/20/2010)
Very low availability for Swedish nuclear power in combination with downtime or other Nordic production facilities resulted in relatively little available power production during the hours with the highest power prices this winter. At the same time, temperatures were low all over the Nordic region, resulting in high consumption while consumption has little price sensitivity at these high price levels. These are factors behind the price peaks this winter, shows a report prepared by Pöyry for Statnett.
The findings are supported by analyses prepared by Nord Pool Spot.
On 17 December last year, the power price on Nord Pool Spot reached almost NOK 12 /kWh and on 8 January the price for large parts of the Nordic market exceeded NOK 8 /kWh. On this basis, Statnett asked Pöyry and Nord Pool Spot to analyse various aspects of the market situation.
The low availability for Swedish nuclear power has partly been a general trend and partly the result of extraordinary factors in 2010. The cause of the negative trend may lie in previous low investment levels as a result of the plans to phase out the Swedish nuclear power. The report from Pöyry indicates that the extraordinary conditions may also be a result of underestimations of the complexity of modernisation projects. At the same time, other production facilities in Sweden, Denmark and Central Norway were also out of commission due to faults or maintenance, and some production facilities had been mothballed, i.e. decommissioned for good.
At the same time, fierce cold periods in the Nordic region resulted in high consumption. In Norway, consumption reached record levels, while the other Nordic countries’ consumption was lower than previously measured due to the economic recession and less consumption by the industry. In an economic boom period, these individual hours could have been strained.
There were also some limitations in the transfer capacity between the Nordic countries and into the Nordic countries. Only half the capacity of KontiSkan between Sweden and Denmark had been available for quite some time, and high consumption in the Oslo area had prevented utilisation of export capacity from Southern Norway to Sweden. There were also limitations as regards transfers into the Nordic high-price area from other countries. Factors in Russia reduced import capacity into Finland, and grid limitations in Poland made it impossible to export power to Sweden.
When the prices reached the highest peaks, price sensitivity among consumers proved too limited. A large share of the consumption is reported to the energy exchange regardless of price, and individual customers stated to Pöyry that they had prepared price-contingent offers in more expected price intervals. This made the demand curve very steep in these areas, and when most of the production capacity has been spent, the supply curve also becomes very steep in these areas. This means that small changes in the volumes supplied or in demand can have very significant impacts on the price
