Unprecedented hydro surge

Hydro levels in the Nordic region are at levels never seen before at this time of year, while southern parts of Europe have also been very wet. 

Listen to Mr Hydrology, aka Eylert Ellefsen, talk about the unusually high precipitation and the impact on wholesale power prices from Trondheim to Tarragona.

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guest: 

• Eylert Ellefsen, senior analyst, EQ. 

Transcript

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:04

Hello listeners and welcome to the Montel Weekly Podcast, bring you the most topical energy matters in an informal setting. My name is Richard Sverrisson. I'm joined today by senior Analyst at Energy Quantified Eylert Ellefsen. Welcome Eylert. Yeah, thank you. Richard. Also known as Mr. Hydrology in the business. Given your expertise on the matter, we were talking before the pod a lot about football, which is also one of your big interests, but I think maybe we can save that for another time. We've. Seen quite dramatic developments, especially in the Nordic market. Alec, in terms of the hydrological balance, I mean, just before Christmas, the market priced in the Nordic power spot just above 40 euros for January. But so far we've seen this. At the moment, the spot price is around 24 euros. I mean, that's quite a substantial difference really. So almost 40% lower. So how much has the hydrology improved during this period and what, what's really going on?

Eylert Ellefsen, senior analyst, EQ: 1:02

Yeah. I must say that there was a really strong increase in also in the forecast during a Christmas period. Because just before Christmas period, it seemed to be a rather calm. Period coming ahead. Week. So, and it was a particular then for the precipitation during week one or week two after new year, the new year, week. Then we saw the extreme increase and for week one and two, I think the accumulate. Did precipitation levels in Norway for these two weeks were among the highest ever seen. Oh, wow. Okay. Yeah. Ever So ever seen,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:35

yeah. Uhhuh. So what kind of levels are we talking?

Eylert Ellefsen, senior analyst, EQ: 1:37

Yeah, we're talking about about I think it's about 15 Tet hours precipitation, which is nine tett hours more than normal Wow. For these two weeks. So it's about 250 percentage. Okay. On normal level.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:52

And this came in the form of rainfall mainly, or was it both Rain and snow?

Eylert Ellefsen, senior analyst, EQ: 1:56

A vari variation of this, but as it was rather mild, we saw the inflow I feast also dramatically. So it was coming from the west, mild weather, wet, bringing a lot of precipitation. And we saw in the western coast particular dramatic increase in inflows, for example, for these two

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:16

weeks. Okay. So this has been. Something that's happening happened in the first two weeks of January and has taken the market. By surprise. Yeah, exactly. So this is unusual. Is there such a surplus everywhere in, in the Nordic region, or is this primarily located in Norway?

Eylert Ellefsen, senior analyst, EQ: 2:33

Well, uh, there were also some small precipitation than normal in Sweden because coming over the border to Sweden, but it was strongly, let's say deep limited. But on the Swedish side the temperature has been milder. Then on the Norwegian side, so the inflows has been very strong also in Sweden. Okay. So we see that they're gonna say water levels in Sweden has more or less leveled out for a while. Which normally we see a decrease during winter time.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:02

Okay. That's the normal, that's the normal condition. They decrease in the winter. And increase. Yeah. In the autumn. Absolutely. And how about Finland?

Eylert Ellefsen, senior analyst, EQ: 3:10

Well, Finland has, uh, well, not been so strongly impacted, but also there a mild period. So inflows stronger than normal. So a bear is impact from the Finnish hydropower. Two.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:24

What does this mean for the market and for prices? They look, I mean, it surely it only points one direction.

Eylert Ellefsen, senior analyst, EQ: 3:29

Yes. We say that from market, the reaction. Okay. So strong decrease. Was it nearly 20 euro? On the January weeks? Yeah. February a bit stronger in the market, but I have seen a bit what's happening now? This which regions has been hit? That's the western part of Norway. We see that price zone won in Norway. East eastern part is not so hit. So there's more a normal situation. Typically when it's been very mild with the strong inflows in the lowland. There's a strong, very, very difference in the snow levels in the lowland and in the mountains high, higher up in the mountains. Sure. Which means that despite a strong increase in the snow, gas war, I think when it comes to, the spring if the weather now turns normalized if possible. I think the inflow during spring could be rather controlled. Okay. Despite a surplus. Because there's not so much snow in lowland. Yeah. And particularly in price zone one in Norway where there's a lot of river plants there. The snow levels are not high. Yeah. So I think you can have a moderate. Impact on this, the spring inflows, if this turns

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:46

rather normal. Okay. So for those maybe unfamiliar with price zone one in Norway, can you just say where that is? Yeah, that's

Eylert Ellefsen, senior analyst, EQ: 4:54

that's the eastern part Oslo. Oh, so the Oslo. Oslo area. Oslo area. Up to the

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:58

mountains and, yeah. So there's sort of low lowlands there, lowlands there, and the lack of snow is there a factor is that's the factor as you're saying, rather than

Eylert Ellefsen, senior analyst, EQ: 5:07

Yeah. In the lowland there. So there, and this strong impact now from what happened during week one and two was not so strong in price on one because it's on the eastern side of the mountains.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:18

Absolutely. As you said, it's more in the mountainous areas on the west. On Western side. So are there any signs of colder weather coming? I mean, uh, you said February was priced a little bit differently, so the outlook there is there, are we, you know, are you expecting any, any colder weather to come or

Eylert Ellefsen, senior analyst, EQ: 5:33

yeah, it will happen. This during this weekend it'll be much colder on the continent. While on in Scandinavia, it'll be at the end of next week we'll see a bit more normalized temperature. Not during this weekend, but. On the continent. It'll happen already this weekend. Okay. But at the end, let's say next weekend, only two or three degrees above normal, which is nearly normalized compared to what we have seen. Absolutely. I think particularly in Sweden, it's been six or seven degrees above normal now for a couple of weeks. So,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:05

and we had the, the incident, I mean, this was before, before Christmas, wasn't it? Where some temperatures are no warmer than in Grand Canaria. So that, yeah, that's a. Very unusual situation. Yeah, very unusual. Yeah. Yeah. If we look then into, to further into Q2 and Q3 what is the impact of this surplus and the hydro reservoirs and elsewhere? What does it mean? Further out?

Eylert Ellefsen, senior analyst, EQ: 6:26

Yeah. I think of course some of this increased snow package has to be, equalized by stronger hydropower production during the period now until end of Q2. There are almost snow. You can produce more. There's pressure on the hydro levels. Both in Norway and Sweden. Now I see. It could be a need for increasing the hydropower. Up to 10 percentage more than normal. Just to, so that don't have that high levels when it comes to

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:55

summer period. So that could have a clear price impact in the immediate term. So less of a. Less of an impact than further out? Is that what you're saying?

Eylert Ellefsen, senior analyst, EQ: 7:04

Yeah, of course. Some of these increased snow levels will be equalized by stronger production until end of Q2.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:12

Okay. And

Eylert Ellefsen, senior analyst, EQ: 7:13

then maybe when it come to end of Q2, the hydro was, will be a bit higher than normal, but then Q3. Shouldn't necessarily be impacted

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:23

so strong. So how long does the price impact of this huge surplus tend to last before we get a normalized situation?

Eylert Ellefsen, senior analyst, EQ: 7:30

Yeah, I think until end of Q2, you will see the strong impact. Maybe prices will normalize a bit, come up. Could be but Q3. Could be a product that shouldn't be so impacted from this situation if it turns normal weather from now on. And this is also of course, priced in that I think that most players believe in still mild weather situation.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:54

Absolutely. That's where the indications are at the moment. And, you know, we tend to stick with what's, uh, what we see within the next 10 days. So potentially the situation could last until. Until the end of June and then from then on from July onwards, the situation could change.

Eylert Ellefsen, senior analyst, EQ: 8:10

Yeah, I think there will be some more. The hydro is expected to be higher than normal by acute three, but most of the surplus will probably be equalized during the period before. Absolutely.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:24

I mean, you're also an expert on on continental Europe, but you've talked about the weather situation in Europe. Turning a little bit colder than what we've seen over the past few weeks. But if we turn to the Southern alp, so if we look at France, even with France, that also had a clear hydro surplus before Christmas. How's it looking now

Eylert Ellefsen, senior analyst, EQ: 8:45

in the southern part? France, Spain, also Italy had a very strong precipitation period by say mid of December. Couple of weeks before. The Nordic situation occurred and then we saw very strong, increase in the inflows and hydropower production because as a more short term, let's say hydropower system in this region, so strong precipitation gives immediate reaction in hydropower production.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:13

And has a downward impact. Done on the power prices?

Eylert Ellefsen, senior analyst, EQ: 9:16

Yes. Because we saw that during Christmas period in Spain in particular in Spain and France, you had zero night hours. That was I think that's some days before Christmas we saw that.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:28

So zero euros during the night hours. Yeah. Yeah. Basically because of hydro. So they were giving it away. Yeah. And that was

Eylert Ellefsen, senior analyst, EQ: 9:34

Portugal, Spain and France. Particular east region. Those three

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:38

countries had. I, you know, price is at zero. Yeah. Interesting. Yeah. Because of, because of the precipitation. Okay. Before Christmas. How is it looking since,

Eylert Ellefsen, senior analyst, EQ: 9:47

well, currently now, the situation normalize a bit. Inflows are decreasing. There's a foreign tendency inflows are currently lower than normal. Hydropower production is still above normal. But not at these extreme levels. Prices has. Have increased. I don't, I don't have all details about prices. There are no, these zero prices yeah. So they've come up from zero. That would be a

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:10

very unusual situation if that was to be. To be lasting out, especially when after the holiday period and demand was to return. So could you say that some of this increase in hydro production has aided, you know, uh, France since it's had a lot of nuclear plants offline, I mean limited nuclear availability in, in, in November and early parts of December. So this increase in, in, in Hydra came to the rescue in a sense. Would that be fair to say?

Eylert Ellefsen, senior analyst, EQ: 10:37

In a way, when we have Sierra prices, you don't need more hydro, no more power production. Absolutely. So that saved them in a way because if they had a cold

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:45

snap, no precipitation, things could have looked very different. If we'd return to France, you said the inflows are reducing. What's the outlook for the rest of the month and the quarter in France? If we start with France and France as in fact.

Eylert Ellefsen, senior analyst, EQ: 10:58

Had very strong precipitation ever since September, October. So the hydro levels are currently on the September level. Okay. Really? That's very unusual. So they haven't declined, they have leveled out more or less since September.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:13

Okay.

Eylert Ellefsen, senior analyst, EQ: 11:13

So there could be a strong hydropower production. Pressure during the winter now for rest of the winter.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:20

Have you seen that before? That No.

Eylert Ellefsen, senior analyst, EQ: 11:21

No. Not that they have equalized or it's leveled out so much, but it's been more extreme in Spain where the hydro reservoir has increased now during December. Which we have seen before. I think there was three or four, five years ago at the same period. They have been very dry before Christmas, and then suddenly everything's changed. The hydros were in Spain increased, and the hydropower increased three or four fold, in fact. Wow. Yeah. Yeah. Which we don't because then it replaces fossil production. Yeah. So it can increase so much. We cannot see that in, let's say Norway. Hydropower can not exceed the consumption plus the export border limitations. But in Spain, you can replace gas fired production by hydropower. So there's another power balance situation there.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:14

Absolutely. Interesting. So do you, how long do you expect this to last? I mean, uh, that's, we've seen this happening in the last few weeks, do you think, for the rest of January into, you know, for Q1? Yeah, I, in Spain we're still, when it comes to

Eylert Ellefsen, senior analyst, EQ: 12:27

Spain. It seems to, to me that it'll last let's say during, let's say towards end of January. If things turns normal now, then you will have a normalized production level, but you would still have this high reservoir levels that you will well not be a problem. It will be an advantage for Spain to have these rather strongly filled. But there will not be this extreme production situation again.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:51

So. Quite bearish still then for bearish, A bearish impact Absolutely. For Spain, absolutely. And for France, but more so for Spain. Would that be fair to say? Yeah, I would say so. Yeah. How about if we then go across to the other side of the Mediterranean to Italy? You mentioned it earlier. What's the situation here?'cause they, they've had not many years ago when they had. Severe drought and very low reservoir levels, but that seems to be completely turned around now.

Eylert Ellefsen, senior analyst, EQ: 13:16

Yeah, they were also hit by this precipitation incident by mid of December. The inflows increased a lot, production, increased hydro production, but there has several levels. They didn't increase that much because they just increased the production so much that they avoided. To, let's say level out the VO

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:36

levels. So they're still quite normal for the time of year. They're not higher than normal, as in other places in Italy.

Eylert Ellefsen, senior analyst, EQ: 13:42

Yeah, VO levels are quite normal. But the snow, I think in Italy also been mild there lately. So I think the huge differences between what are the snow depth. In the mountains and in the valleys. Even in the north, we can see that from the skiing. Of course competitions we see there's not so much snow in the valleys, but should be a lot in the mountains.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:02

So there is variance there. So there's snow, there's quite deep in the mountains, would you say? I would expect that. So above

Eylert Ellefsen, senior analyst, EQ: 14:09

what kind of aptitude we are? I'm not, I think about over 2000 meters. You need to be above 2000 meters to, yeah. So

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:16

there's a tip for all those skiers, you know, go find the, uh. The resorts with that are above 2000 18, 15, 1500, 2000. Yeah, absolutely. So the situation across Southern Europe and the Nordics is, is very bearish. But if we go north of the Alps

Eylert Ellefsen, senior analyst, EQ: 14:31

Yeah. North of the Alps, there's been not so much precipitation and it's been mild. So we see that in Switzerland where. On the, let's say the northern part. There's not so much snow. Of course, they're not. So the Alps are not that dominant in this region. But it's on the southern part of the Alps, the seed van as it called. Yeah. Yeah. There. And in the valley valley. There you have lots of snow. But then north of this. If you go to Wein, for example, we'll have a skiing competition in Wein. This weekend. There, there are not so much snow in this region. Okay. This is more on the north

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:05

So that's where the precipitation has been much less than in the last few weeks, contrary to the southern parts. Yeah. Because

Eylert Ellefsen, senior analyst, EQ: 15:12

the precipitation has

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:15

pattern has come from the south. Yeah. And what about, say. I mean, we're also seeing, um, you know, even further north in Germany, the Rhine River levels are, are almost approaching a meter at, uh, it'll come down to meter, which, you know, meter 20. I think some of the, some of the last readings I saw, um, yeah, below normal. Below normal. I mean, uh, they are at one meter 20. Yeah. So I think this is quite, these are, I'm no experts. I unlike yourself, but I think that's, I must

Eylert Ellefsen, senior analyst, EQ: 15:42

admit that I haven't, I haven't followed the details in this in the Rhine and the German. We have so much lately, but. There is a probability then that we will see once again low levels during the spring and and and summer. So,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:57

because there doesn't seem to be that even though the weather has been quite mild, there isn't that sense of precipitation. That's No, there's

Eylert Ellefsen, senior analyst, EQ: 16:04

not so much snow that can melt let's say in the northern parts or this part of Switzerland, which comes into the Bo Sea. And then, the Ryan,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:13

so the impact here, we could see a return of the problems associated with low rivers, which means that the barges can't get to the power plants, et cetera. So is that a fair assumption then Nala to, to that we could see a repeat of these things that we've seen in recent years that could

Eylert Ellefsen, senior analyst, EQ: 16:29

happen. At least you don't get so much help from, let's say, well filled snow, gas water levels. They are. They are not so, uh, high at the moment. So

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:38

how about Austria? Eh, we haven't mentioned Austria.

Eylert Ellefsen, senior analyst, EQ: 16:41

Yeah, Austria. They have had during this December incident rather strong inflow levels. The the al was quite high at that during this period. So they also have this. Declining tendency. I think also in Austria have to, with the mild weather, we have seen that the snow level, you will find the snow rather strong above 2000 meters, but below not so much.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 17:07

Okay. Similar to similar bit, similar to Switzerland and that Yeah, yeah, yeah. Well. Thank you very much for an excellent overview of the hydrologic, hydrological situation across Europe. It's a pleasure to, to have you on the pod as ever. Maybe next time we can talk about the, some of the famous people you've met in the football world. No.

Eylert Ellefsen, senior analyst, EQ: 17:26

Well, I think you're maybe some famous hydrologist. Must be the next topic. That's

Richard Sverrisson, Editor-in-Chief Europe, Montel: 17:32

the hydrologist you've met. Maybe we'll go there. Absolutely. That's all from the Montel Weekly podcast This week thank you to Alat and remember to keep up to date with all our stories on Monte News and follow us on Twitter, LinkedIn, and subscribe on Apple Podcasts and Spotify. Thank you and goodbye.