ForTheDoers Blog

What happened to electricity prices?

Mats Persson  ·  12 June 2020

This exceptional spring saw electricity prices hit their all-time lowest. Why is that? The pandemic and the restrictions related to it certainly play a role, but are there other important reasons, as well?

Solberg wind park

First, let’s take a look at the basics of the Nordic electricity market. In the Nordic countries, electricity is traded at the Nord Pool power exchange, which operates much like any other market exchange. The Nordic power market price is a result of the supply and demand balance of electricity in real time and future expectations.

The most commonly used reference for the power price is the so-called spot price at Nord Pool. The spot price for each hour of a day is set in a daily auction where buyers and sellers of electricity are bidding for the next day’s 24 hours.

The average system spot price in April 2020 was 5.3 EUR/MWh, which is the lowest monthly average spot price ever. As the spot price is a result of the supply and demand balance, the current price indicates that we shouldn’t worry about the lack of electricity right now. The energy companies have been ensuring the security of supply also during these exceptional times.

So, why has the spot price been at this historically low level?

Covid-19 and the restrictions set to slow down the pandemic certainly play a role. The shutdown of the economies all over the world is driving the decreased demand for energy commodities like oil, gas, and also electricity. Furthermore, less industrial activity has resulted in a decrease in the price of European emissions allowances.

However, Covid-19 and its consequences are not to be entirely blamed or thanked – depending on your point of view – for the low prices.

Other key reasons for low spot prices in the Nordics have been the heavy rainfall during the last couple of months, combined with windy weather and hence increasing amounts of wind power as well as an exceptionally mild winter. The reservoirs in the Nordic countries contain more water than usual. The wind power production in the Nordic area has increased from almost nothing in 2000 to about 15% of the total Nordic electricity production in 2019.

So, no reason to hoard electricity now due to Covid-19, but it’s a good time to use CO2-free electricity, for example by driving electric cars, heating the saunas or investing in electricity-based industrial solutions, which help to decarbonise our society.

PS: In the future, clean electricity must also be stored; actually it’s one of the keys towards the decarbonised energy system. But that’s another story – read more, for example, here.

Mats Persson
Head of Hedging and Pricing, Fortum
mats.persson@fortum.com