GO price plunge due to hydro glut not pandemic – analysts

Aug 28, 2020 | Montel

(Montel) Nordic hydropower guarantees of origins (GOs) prices – a benchmark for Europe – have fallen by around two-thirds this year, with analysts blaming the move more on a supply glut than demand hit by the coronavirus pandemic. 

“We should be careful to put the blame [of weak prices] on Covid-19,” said Jesper During Lausen, head of renewable and consumption of Centrica’s energy trading division. 

“What definitively has impacted the market is the huge outselling of hydro GOs coming into the market,” he told Montel’s Nordic Energy Day webinar on Thursday.   

Others agreed. “I cannot really see any large impact from the Covid-19 [on GO prices],” said Mia Bodin, head of analysis at Bodecker Partners. 

“Of course, it will have a longer-term impact on [power] consumption. But compared to the hydro situation, it is small.” 

Matti Ahtosalo, Alpiq’s head of Nordic origination, said the covid-19 effect on the GOs was not “visible yet”.

“The effect could be there, but it is lagging a bit,” he said. 

Price plunge
The Nordic 2020 GO hydro contract has fall from EUR 0.47/MWh at the start of the year to a current level of EUR 0.15/MWh, according to Montel’s Green Power Hub. 

Nordic hydropower inventories rose close to record highs this spring following a wet and mild winter. In response, Nordic spot power prices plumbed record lows this summer. 

The so-called hydrological balance in the region – a measure of potential hydropower output stored in reservoirs, snow and soil – had a whopping surplus of 36.5 TWh in April. 

The surplus has since fallen to 13 TWh, yet still well above -6 TWh seen a year ago and -20TWh in 2018, according to Montel’s Energy Quantified.

Nordic hydropower reservoir levels currently stand at 89% of capacity at present are likely to continue to increase in the autumn should weather conditions stay normal, analysts said, suggesting continued pressure on the hydro GOs.  

French auctions 
Furthermore, French GO auctions had depressed the European GO market, with supply outpacing demand, said Lausen.  

In the latest French auction last week, the EEX exchange sold just 16% of a 1.95 TWh volume of GO for renewable power compared to 80% of 1.7 TWh in July and 40% of 2.7 TWh in June. 

A quarter of all power consumed in Europe last year was covered by GOs, and only 11% in France, according to the Association of Issuing Bodies (AIB).

Reporting by:
Herman Moestue
12:42, Friday, 28 August 2020