(Bloomberg) -- The Nordic region’s glut of water for power generation is set to widen to a four-year high, pushing electricity prices lower as Sweden’s central bankers prepare to meet.
The overall hydrological balance for two-weeks ahead — a measure of energy stored in reservoirs and snowpack compared with the seasonal norm — soared on Friday to 14.91 terawatt-hours, the highest since December 2020.
Meanwhile, the Nordic power contract for next year dropped for an eighth day. That’s the longest losing streak in five years, despite extreme volatility in the European power market this week.
It’s welcome news for the Nordic region’s energy-intensive companies, which churn out everything from aluminum to paper, as well as for households that are among Europe’s biggest users of electricity for heating.
It also comes just ahead of next week’s meeting by Sweden’s Riksbank. Lower electricity costs have helped to keep inflation in check for most of this year, and economists widely expect the bank to reduce interest rates again, to 2.5%.
“With the energy price outlook pointing to lower costs ahead, we do not think this week’s surge in electricity markets will deter the central bank from lowering borrowing costs next week,” said Bloomberg Economist Selva Bahar Baziki.
“Further out, we see the contained energy pricing for 2025 supporting our baseline call of a 2% terminal rate from the central bank early next year,” she added.
While wind energy tends to set prices on a daily basis, hydropower is the main driver for more long-term contracts. More than 1,000 hydroelectric plants scattered up and down Norway provide virtually all of the country’s electricity. Hydro is also the largest share of power in Sweden, along with nuclear and wind.
Weather forecasts for the coming days show conditions that would create less demand for heating, while increasing the glut of hydro resources.
“Temperatures are about to rise during the coming days and will be above average through most of next week,” analysts at EnergiDanmark A/S said in a note on Friday. “Next week also looks very wet and the hydro balance surplus rises to 15 TWh in two weeks’ time if the current weather forecasts turn out to become reality.”
Even though low-cost, low-carbon electricity has kept Nordic economies humming for decades, prices can surge at times of lower overall availability, due to the region’s increasing links to the continent and the UK. That has sparked a debate in Norway ahead of next year’s general election over whether exports should be curbed.
Nordic next-year prices dropped 1.3% to €33.20 per megawatt-hour on Friday on Nasdaq Inc.’s commodity market. That’s the lowest since November 2021.
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