Towards winter – what is the outlook for the electricity market?
Autumn has begun, and attention is gradually turning towards the coming heating season. There are currently several uncertainties affecting the outlook for the electricity market.
Electricity prices during the coming winter will be influenced particularly by the weather, the hydrological situation in the Nordic countries, and developments in the European energy and gas markets. At present, there is no particular reason to be concerned about the availability of electricity in Finland, but it is worth being prepared for price fluctuations.
The European gas situation increases uncertainty
One of the biggest uncertainties at the moment is the European natural gas market. Gas storage levels are low for this time of year, and an important factor for the coming winter is how much the storage facilities can be replenished before the heating season begins.
Uncertainty in the Middle East is also affecting the situation. The Strait of Hormuz is one of the world’s most important transport routes for oil and liquefied natural gas (LNG). Disruptions and uncertainty caused by the conflict in the region have contributed to higher prices for both oil and natural gas.
Although Finland is not as dependent on gas for electricity generation as many countries in Central Europe, high European price levels can also affect us. Cross-border transmission connections link the electricity markets, meaning that high prices in Central Europe can also influence electricity prices in Finland, particularly during cold periods with little wind.
The Nordic hydrological situation is weaker than normal
The hydrological situation in the Nordic countries also affects the price outlook for the coming winter. Norway and Sweden have substantial hydropower capacity, but reservoir levels are currently lower than normal.
However, the situation is not the same everywhere. The hydrological situation in southern Norway is weak, while reservoir levels in northern Norway and northern Sweden are considerably better. The situation can also change quickly. A rainy autumn in Norway and Sweden would improve the hydrological balance and, at the same time, improve the price outlook for the winter.
Finland is nevertheless in a good position
The situation in Finland is clearly better than during the energy crisis in 2022. According to current plans, Olkiluoto 3 will be back in operation during the winter, wind power generation has increased, and electricity transmission capacity from northern Sweden to Finland has been expanded.
The large amount of wind power also means that electricity prices can fluctuate more than before depending on weather conditions. During windy periods, electricity supply can be abundant and prices very low, while cold and windless weather can quickly push prices higher. In recent weeks, spot prices have varied considerably between windy and windless days.
During the autumn, electricity prices in Finland are also affected by annual maintenance outages at nuclear power plants. Price volatility in the market is therefore expected to remain high.
Are we facing an expensive winter for electricity?
There is no clear-cut answer to this question yet. At present, we are not seeing a situation comparable to the energy crisis in the autumn of 2022, but there are more uncertainties than usual.
Much will depend on the weather over the coming months. A rainy and windy autumn would improve the hydrological situation in the Nordic countries and increase renewable electricity generation. Cold, dry and windless weather, on the other hand, could push prices higher. Developments in the European gas market and the situation in the Middle East could also have a significant impact.
Electricity for the coming winter is currently priced on the electricity futures market at a clearly higher level than the spot prices realised in Finland over the past few months. Futures prices are not, however, a guarantee of future spot prices. Rather, they indicate the price at which electricity can currently be hedged for future delivery.
Electricity price risk can be managed
When choosing an electricity contract, it is worth considering how much price fluctuation you are prepared to accept in your household budget.
A spot-price contract follows the market price. Customers therefore benefit from low prices but, at the same time, bear the risk of periods with high prices. Price fixing, in turn, helps to manage price risk and makes electricity costs more predictable.
“At present, there is no single factor concerning the coming winter that gives us particular cause for concern. There is, however, uncertainty, which is why everyone should consider how much fluctuation in electricity prices they are prepared to accept,” says Johanna Övergaard, Sales Director at Herrfors.
Price fixing protects you from rising electricity prices
Do you want to get all the benefits of spot electricity, but are worried about high price spikes in winter? A Spot+ contract works like a regular spot electricity contract, but also offers the possibility to protect yourself from price spikes. You can fix part of the electricity price in advance for the months you choose with a price fixing and thus protect yourself from large fluctuations.