Our new power price forecast shows that strong growth in local, small-scale renewable generation yields ample generation and sustains low prices. Longer-term price increases will require stronger European RES and climate policy cooperation.
Our new and revised power price forecasts for the Nordic and European power markets focus on the impact and effect of strong growth in renewable generation and storage technologies. We analyse both the effects of a central case for RES investments, in our “Climate Cooperation” scenario, and the impact of additional decentralised investments, in our “Prosumer Power” scenario.
The “Prosumer Power” scenario yields long-term Nordic prices of around 30 EUR/MWh, falling to 27 EUR/MWh in 2040. The current situation of strong supply/demand balances in most countries becomes even more pronounced in this scenario.
For long-term power prices to increase beyond 2020, as in our «Best Guess» and «Climate Cooperation» scenarios, the European countries need to cooperate more closely both on renewable energy and climate policies.
To achieve a price recovery, an increase in carbon prices is key. However, cost developments for new renewable generation are likely to cap the long-term price level in the Nordic spot market.
European power prices are expected to decrease somewhat towards 2021 due to falling coal prices. The reduction will be strongest in the UK due to the launching of more interconnector capacity to lower-priced areas. From the early 2020s we expect that a tighter supply/demand balance and increasing CO2 and gas prices will lift power prices in all European countries. In France, less nuclear generation also contributes to higher prices.
The current elcertificate surplus is an increasing source of concern for investors in the elcertificate market. The new elcertificate forecast therefore addresses the likelihood of oversupply in the elcertificate market and its consequences for future prices.
We combine a new option pricing methodology with fundamental investment modelling to predict prices and the quantity of banked certificates. Although long-term oversupply becomes more and more likely, elcertificate prices retain a positive value at around today’s level due to the risk of future scarcity brought about by weather variability.
The decision of Sweden to extend the certificate market also helps sustain a positive price.
Read more here.