June 14, 2018 / 11:29 AM / a year ago

Low on snow: Norway's power prices soar as dry spring gulps down reservoirs

OSLO (Reuters) - Norway, Europe’s largest hydropower producer, faces higher energy costs this summer as much of the snow accumulating in its mountains evaporated or melted into the ground during a shock heat wave, its water resources and energy regulator said.

Following an unusually cold winter that depleted power producers’ reservoirs more than usual, companies had relied on a gradual spring melt to replenish dams, but projections now show this is no longer feasible, the NVE directorate told Reuters.

“Some customers may not be happy with their power bill in 2018, but that is the cost of a weather dependent power system. In wet and normal years, power prices tend to be lower,” NVE adviser Martin Andreas Vik said.

With about 96 percent of Norway’s energy needs covered by electricity from hydropower, the expected lower reservoir levels drove spot power prices to above 45 euros per megawatt hour on average this week, double year-on-year.

From mid-May to early June, temperatures in southern Norway hit records for that time of the year, exceeding 30 degrees Celsius (86 Fahrenheit) and leading many municipalities to ban outdoor barbecuing to prevent fires.

“This is the driest three-week period ever recorded, with measurements from 1958 until today,” Vik said, as projections showed more snow had evaporated or melted into the ground than had flowed into reservoirs.

“The melting season is not over, but we have less snow left in Norway than normal,” Vik added.

By June 3, the remaining snow that had yet to melt in mountain regions corresponded to an estimated future power output of 10 Terawatt hours, as opposed to 32 TWh in a normal year, he said.

By June 11, Norway’s reservoirs were 56.8 percent full, still higher than last year’s 54.7 percent, but with much less snow left to melt it was only rain that could significantly increase it.

Last year, reservoir fillings peaked at 86.5 percent in late October. In 2018, the peak will come much earlier as Norway has so far received 25 TWh less rain and snow than normal, equal to 30 percent in reservoir capacity, NVE said.

While the cold winter and subsequent smaller inflows drove Norway’s prices higher, they were not the only market driver, Vik said.

Increasing CO2 and coal prices, combined with low wind power production in Europe, made Norwegian electricity more competitive to export, and even during the dry period Norway continued to supply its neighbors through interconnections.

Editing by Terje Solsvik; Editing by Edmund Blair

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