Montel Magazine 2 2021 - Border control - Page 20

Bananas :

Nordic firms face hedging challenges ?

Nordic power traders are finding it increasingly difficult to hedge their future price exposure due to widening area price differences , with one market participant joking there is a stronger link with the cost of bananas than to the Nordic system price .
By Olav Vilnes
Highlighting the divergence , in this year ’ s first-quarter prices in the region ’ s 12 bidding zones spanned a EUR 16 range , from an average of EUR 33.92 / MWh in northern Norway ( NO4 ) to EUR 50.56 / MWh in eastern Denmark ( DK2 ) – with day-to-day variations often significantly higher .
The big differences constitute a challenge for market participants that wanted to hedge future price exposure , as the traditional futures contracts using the pan-Nordic system price index as reference are becoming less accurate .
“ Recently we may have seen a stronger correlation between power prices in the NO3 bidding zone in central Norway and banana prices in South America , than between NO3 prices and the system price ,” says Per Arne Austli , a trader at Trondheim-based utility Tronderenergi .
NO3 spot prices averaged EUR 5.09 lower than the system price in the January-March period , with the former often influenced by Sweden ’ s two northernmost bidding zones , where a strong hydropower surplus and limited export capacity often sees lower prices than typical .
Jorgen Gunnestad , head of power trading at Norwegian power company SKS shares the view that several price zones create headaches . “ We have seen extreme differences in spot prices within the Nordic market and we expect these to continue for some time .”
“ For us as a power producer in northern Norway , it is a major challenge when we want to hedge our future production .”
Wholesale power prices in his region , the NO4 bidding zone , averaged EUR 33.92 / MWh in the first quarter , EUR 8.21 lower than the Nordic system price .
Both Austli and Gunnestad say their companies can no longer
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Montel Magazine 2 – 2021