Currently, there is a strong public focus on the very low hydro reservoir situation in Norway-South as spot prices are surging and we continue to experience an energy crisis across Europe.
Normally, in a situation where we see low levels of reservoir filling, the Norwegian supply situation would be made secure by the interconnections with both Great Britain (GB) and Central Western Europe (CWE). However, it is not unreasonable to suggest that given the current state of energy markets across Europe, this source of power may prove limited or possibly even fail by the time we reach the spring.
As a result,the dependency on the reservoir filling and hydro power availability has become more important than ever for Norway-South. Adjusting production levels in accordance with the precipitation and inflow situation (to secure sufficient reservoir level in order to avoid or reduce the risk of supply squeeze next winter and spring) will no doubt become a crucial factor in the coming months.
To explore the future possibilities, EQ has made reservoir and production calculations for Norway-South, based on inflow scenarios for weeks 30-52 2022. These have been produced using 43 years of climatic weather statistics. Power balances and net exchanges are parts of these calculations as well.
In order to avoid any risk of supply squeeze, No-South needs to achieve around 60% of reservoir filling levels by the end of this year. This is around 10% lower than the long-term normal. This would allow demand to be met by approximately 85% of normal production and about 2.5 TWh of net import from normal inflows and weather for the rest of this year.
In a dry scenario (5th percentile) the production has been reduced by about 20% of normal levels, avoiding an “all time-low” reservoir situation by New Year. This would require about 4.6 TWh of net imports (1300 MWh/h as an average) for the rest of this year, with spot prices remaining close to those seen in the European market.
From the simulation data, we have found two incidents from the past 43 years which are significantly lower than the 5th percentile. Both 1993 and 2002 were nearly 10 TWh lower. Should these weather years be repeated, the supply situation will be very severe.
Even in the wet scenario (95th percentile) reservoir filling levels are not set to reach the long-term normal unless production is reduced to about 90% of normal outputs.
Inflow scenarios No-South until end 2022
Our climatic scenario study of the expected inflow levels until the end of 2022 is shown below in a weekly resolution. The chart shows the weekly average scenario, the high (95th percentile) and the low scenario (5th percentile) as well as both the long-term normal and 2021 actual.
The average scenario is somewhat lower than the long-term normal during weeks 30-37 due to the current dry situation. We can also see how dry 2021 was in the same period.
To get a view on reservoir filling and production levels throughout the autumn and early winter, we need to study the accumulated inflows for weeks 30-52.
Our total 43 years of accumulated inflow data is shown in the chart below. The variation band for the 95th – 5th percentiles is about ±10 TWh.
We can observe a significant skewing of the distribution in the lowest scenarios as these are significantly extreme at nearly 20 TWh lower than average. These extreme years are the 1993 and 2002 scenarios, both lower than the fifth percentile at 26 TWh.
Reservoir outlooks until week 52 and possibilities for supply squeeze next winter
Based on the accumulated inflow scenarios and adjusted production profiles (relevant percentages of the long-term normal curve), we have estimated the reservoir curves until the end of week 52.
The production curves are scaled from the long-term normal in order to avoid lower reservoir levels than the 20-year historical minimum in the dry 5th percentile scenario, and to refill close to the long-term normal in the wet 95th percentile scenario.
In the 5th percentile scenario, which ends at the historical minimum filling rate at 45% by week 52, there is an obvious risk for a supply squeeze in Norway-South by spring 2023, depending on how the weather comes out during Q1-2023. The energy situation in Europe will be a notable factor too.
In general, we have not made specific estimates of the risk for a supply squeeze the coming winter. Our view is based on data from recent years, and we believe that if the reservoir filling levels are higher than 60% by the New Year, the risk of a supply squeeze can be avoided. More detailed studies have to be made to confirm this assumption, but this is currently our conclusion. As it stands, reservoir filling at about 60% is our average estimate, which indicates that there is a 50% risk for a potential supply squeeze in the coming winter
The winter of 2021 was rather mild, with all time high levels of wind power produced in Germany during February, so even where reservoirs were only 50% full by New Year 2021/22, a supply squeeze was avoided. Factoring in a colder and less windy winter, we assume that 60% reservoir filling by New Year will be needed.
In the table below, you find the powerbalance numbers from both the inflow and reservoir scenarios. In order to avoid lower reservoir levels than the 20-year minimum, production must be reduced to about 80% of normal in the dry scenario. This means that No-South would need to import about 4.6 TWh via interconnectors. Comparatively, NO-South tends to export about 3.6 TWh in the same period (weeks 30-52) during a normal year.
With normal precipitation until New Year (average inflow scenario), we estimate that there will be a requirement for around 2.5 TWh of imported power (net) and that reservoir fill levels would reach 58% by the end of December. This remains a long way below the long term normal (71%). The production in this average scenario represents about 85% of normal.
One further conclusion we can draw from the numbers in our table, is that even in a particularly wet scenario, we will continue to need reduced hydro production (88% of normal) and rely on limited accumulated imports until New Year to reach long-term reservoir filling averages (71%).
It is also interesting to note the numbers from 2021, they show 5.0 TWh of net export despite 8 TWh lower inflows than normal.
Market price outlooks
In the table below, you can see the closing prices from Friday July 22nd. The prices are based on the Electricity Price Area Differential (EPAD) prices and Nord Pool System (NP-Sys) prices.
As No-South is calculated to be in an import situation for the rest of 2022, we see that there is a further upward potential for the NO2-prices. The gap between the NO2-price and the CWE/GB prices will need to be narrowed if the necessary net imports to No-South are to be secured.
At the time of writing (Friday July 22nd) the energy situation in Europe is still very sensitive to levels of gas imports from Russia, which makes it very difficult to have a view on price-levels for the autumn and winter.
EQ has created this scenario study of the inflows and reservoir outlooks across No-South to assess the potential variation band of reservoir filling towards the winter. The inflow modelling is based on the SMHI HYPE GWh concept, and the power balance is based on data available in EQ's database.
Please contact us at email@example.com if you have questions about this blog post or other requests concerning our analysis.