Record low Nordic power prices threaten generator credit profiles: S&P Global Ratings

London — Record low Nordic power prices and a structural shift to renewables will weaken electricity generators' credit profiles over the next year, potentially forcing disposals, S&P Global Ratings said in a report Oct. 15.

The Nordic power market is suffering from its lowest power prices in 20 years, depressed by mild and wet conditions that have increased hydro power production and cut power demand. The latest Nord Pool data show Nordic hydro reservoirs at 91% of nominal capacity.

"Some utilities, including Vattenfall, Statkraft, and Fortum, may have to adjust dividends and investments and dispose assets to defend their credit quality," said S&P Global Ratings credit analyst Per Karlsson.

Structural changes, including an increased dependence on intermittent wind and solar, market integration challenges due to grid constraints, and the shift in merit order toward lower marginal cost production, would lead to increased price volatility and eventually weaken profits of conventional merchant generation in the Nordic region.

"This could translate to more demanding thresholds for existing ratings if companies do not successfully reduce and manage volatility with long-term hedges, power purchase agreements, and a higher share of cash flow from regulated or long-term contracted activities," said Karlsson.

The future looked brighter further out, as electrification of transport, decarbonization, and additional transmission capacity post 2023 could reduce the current imbalances in the Nordic power market and align power prices with those of continental Europe, the report said.

Year-to-date Nordic spot prices were averaging Eur9.60/MWh to Oct. 4, down over 75% year on year from 2019's Eur39/MWh average.

S&P Global Ratings forecast average prices to stay low at Eur10-Eur15/MWh in 2020 and Eur17.5-Eur22.5/MWh for 2021.