Main analysis: 16.02.2020

Warm, Wet and Windy (WWW) is the main trend until April. Only a modest effect of WRM-CDC (Cold, Dry, Calm) days which results in a short “dip” at endings, which will fade off and we are back to strong WWW forecasts far above normal. Some volatility in forecasts during the start of the week is expected. The Polar Vortex (PV) is very strongly suggesting for a PV-WWW effect throughout April. Late 2020 and 2021 contracts will see more weather pressure into March – reservoirs will peak during summer and autumn and some will see flooding. 1 of January 2021 best-case scenarios shows Hydbal = surplus of 16-26 Twh. Everything else is more or less like last weeks: bearish

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    Weather strategy week 8-9:

  • Close range sell: All futures above 13-14 euro

  • Close range bull: All futures below 7-8 Euro

  • Bearish Q3-4 and 2021: NC will be decoupled DE and with an abnormal surplus in hydbal (HPR)

WRM+PV: Warm, wet and windy (WWW) to strong WWW:

  • The main signal is WWW far above normal levels

  • We could see mixed ens mean forecasts trend and some CDC trend in opr early week 8 but strong WWW will be seen in all forecasts into week 9

Market intel:

  • SMHI hopes for Hi-pressure towards March will fade off and again EC46 will turn stronger WWW

  • Several companies will have to adjust their outlooks again as the forecasts again will show a week with massive WWW – this weather regime will not turn until late April-May

  • Many will adjust their outlook to “super bearish” the following weeks – 14 Euro is a good deal regardless of Germany – NC will be decoupled with DE until we have control on Hydbal (HPR)

  • In case of WWW forecasts towards the middle of March and no signs of an SSW then a new massive sell-out (Q3-Q4 and 2021…) may take place since all hope of a turn will fade off again, and again and again, until an SSW or death of the PV

Synoptic confirmation (SC): WRM+PV shows the path further on

  • EC and GFS in line with expectations  – only a short cold-calmer dip at endings and then back to WWW

  • Between passing strong lows, some less WWW is seen and we could see som calm-cold dips towards normal levels

  • Low uncertainties for surprising stable cold-dry weather according to a detailed analysis of the last forecasts – solid WWW is coming – low risk (10%) for many CDC days to show up in forecasts

Only a short dip as expected before a turn back to WWW endings far above normal. Some volatility is expected before we see stable WWW endings. Source fig: Refinitiv – Eikon

Synoptic risk analysis (SRA):

  • Only 5% probability for an SSW (winter..)

  • Every time an SSW shows up in models it fades off

  • The PV survives all attacks = more WWW forecasts after short cold-calmer dips

  • High risk for more extreme WWW (ens mean) days in the forecasts into the week – timing is uncertain

  • We could see “short colder and calm dips” as described before but they are not game-changer just a new “dip”

  • In late February/March an “SSW” can take place but that is too far out to consider now – but if it takes place and if it has an effect on the surface it can turn forecasts fast dry and calm lasting for months

 

Low-pressure anomaly keeps being the main part of the forecasts. But the PV moves a short period east and that suggest lows further north = less warm and wet, but windy and risk for some colder and calmer days before forecasts turns back to solid WWW in line with PV. Source map: MetDesk
After some bumpy days PV recovers the attack by the WaF and comes back strong = massive WWW is coming again given current PV-Jet configuration. Last part of the forecasts the PV turns back to strong WWW = forecasts will turn WWW and thus just a dip is seen in EC14/GFS towards endings of last days forecasts. Source map: MetDesk

Inflow:

  • Expected to be above normal levels onwards and increasing after some colder dips throughout Q2

  • Given colder dips after strong lows passing NC, we see colder temps sustaining inflow below 1 Twh

  • Into late February and into March we can see above 1 Twh inflow levels per day in case of strong WWW days

  • Still risk for massive 5-7 TWH surplus precip lows later into February that can peak Inflow

  • NO(1)-2-3-5 and SE2-3 is expected to get significant precipitation later into February putting more pressure on the reservoir that already is above normal levels and with significant snowpack (more uncertain about NO1 than previous assumptions)

Long-range EC46 and the Weather Regime Model (WRM): 2021 and risk for 2022 will be affected by current weather regime

  • Using EC46 setting the path for WWW levels and risk for HI-pressures are high risk as things are now: EC46 will adjust towards WWW again in the short-range

  • The last EC46 came in according to expectations and following EC46 is expected WWW far above normal levels

  • The last risk for HI-pressure weather into March will fade off (as SMHI discussed), only some risk for more Hi-pressure influenced weather for FR, periodic DE

  • Only an SSW can turn weather to normal or CDC for weeks as things are now – only short less WWW periods and cold dips are expected as things are now

  • No SSW is seen and has very low risk (5%) for now = more WWW is coming

  • Crazy: First signs in the WRM that last part of April+May becomes dry and sunny before a cold, windy and wet summer over NC

  • Without an effective SSW-FSW confirmed soon then March-April will be brutally hard for the NC and DE power markets

  • WRM: long-range shows a high risk for a surplus of minimum 16-26 Twh at start of Q1 2021, my assumption: 41-51 Twh

Oil, Gas, Coal and CO2:

  • Full storages, healthy supply, warm temperatures and high wind, trade war, economic concerns, and coronavirus keeps pressure on thermal power (oil, gas, coal)

  • The main signal is bearish but some small technical corrections and short hopes/dreams off a turn can take place

  • Opec cuts may stabilize Oli prices but any bull turn is less likly

  • Coal rises given speculations in China internal production disruption given virus: only short-timeframe speculations and nothing lasting big disruption is confirmed

  • CO2 will be pulled down by WWW weather, bearish thermal outlook and more allowance into the market – temporary bullish given auction and coal

  • Several comments on downside risk for March+April+May in case of WWW late winter for FR+DE areas

  • Next EC46 and continuous high wind in EC14 forecasts (endings turning again WWW) will put continuous pressure on France+German power pulling NC further down

Fundamental market models:

  • From Christmas, fundamental market models keep “running after the market”

  • Significant changes and dominated weather periods are not seen by typical Hydro produces tools (Samkjøring-VanSim-Prodrisk-Shop-Excel…)

  • This is mostly given that many only use 10-15 days forecasts and normal levels thereafter

  • Thus, the market keeps stepwise adjustment to the persistence of weather systems – most don’t use skilled energy meteorologist

  • Also, as seen the water values adjust significant faster and lower than expected by many players because of the new energy-climate and significantly increased wind production in NC: higher weather sensitivity

  • Thus, the downside is still there with the next weeks WWW forecasts and in case of no turn before April to cold and dry we are up for a “flood” of water that needs to get out in the models – also for 2021

  • Intake capacity limitations and restrictions will result in that many hydro producers must produce at maximum throughout the summer: I believe that many have awaited the extreme development (see reservoirs filling vs production) up to now: “still time left and this will turn soon + model weaknesses…” will crush the market even further and also far into 2021 if no SSW-FSW shows up soon

Water values (WV): 10 Euro is coming at peak hours

  • Water values vs. profit margin for hydro producers: 7-8 Euro, which shows the downside of futures onwards

  • 14 Euro is a good price as things are now

  • Based on the current reservoirs and Hydbal most hydro producers must produce far more than average production up to spring

  • Hydro producers must fight the persistent WWW weather and also low continental prices

  • Expected down later in the week and onwards towards 7-8 Euro – the producers will see continuous significant WWW forecasts

  • Hydro producers will be forced to keep water values low and even turn them lower – stable very high wind in NC and Germany can push hydro producers partly “off-market” for 3-4 weeks before the spring arrives increasing the need for higher hydro average production

  • Thus, continuous high to extreme wind, low consumption and increasing Hydbal keeps pressuring WV down, and soon we will see inflow/unregulated far above normal levels

  • Long-range reservoirs fillings will increase significantly towards the summer and into next winter and that will put pressure on 2021

  • Negative prices for a large part of the day can be seen in NC as soon as high inflow with high wind is observed in NC+DE

  • Below 6-7 Euro many hydro producers will for the first time have to stop producing in periods during Q2-3: the cost and tax is then too high

Weather trend in forecasts into next week: sustaining WWW

NC:

  • Mostly WWW to strong WWW, endings will turn more WWW towards the end of the week

  • Temps above normal, some days with around normal temps can show up in forecasts

  • High wind seen for a long period in forecasts can take place in NC+DE+FR during the same days

DE:

  • Wind above to fare above normal – any calmer endings will turn back too far above normal again

  • Temps above normal, short periods with normal temps can show up in forecasts, but wet and windy

FR:

  • Wind above to fare above normal – any calmer endings will turn back too above normal again, but in less degree, than DE

  • Temps above normal, some days with normal temps can show up in forecasts, but wet and windy

Flooding – Equities

Given the high risk for flooding:

  • Sell insurance companies – massive payout is coming

  • Buy Norconsult/construction and similar companies: will take a long time to build up infrastructure and power systems

  • The flooding cost during 2011 and 2013 for Oppland county was about 1000 MNOK (Main cost covered by Vegvesenet, Jernbaneverket, NVE, KMD and insurance companies)

  • If strong WWW up to May then Hydro producers will not be able to hold back spring/summer melt and many reservoirs can be flooded

  • In case of a wet spring-summer scenario, we can see flooding levels above 500-year interval which will push costs and time to repair to new levels not seen in modern times