Nordic Utilities 'Pressured by Prices': Report

Historically low power prices and the structural shift toward renewables will hit Nordic utilities exposed to merchant power plant, according to a report by ratings agency S&P Global "Some utilities, including Vattenfall, Statkraft, and Fortum, may have to adjust dividends and investments and dispose assets to defend their credit quality," it said.

But the longer-term prospects are brighter, as demand grows with the fleet of electric vehicles and other decarbonisation initiatives that may align power prices with those of continental Europe, the report says.

Unusually mild and wet weather has depressed power prices in a region that relies heavily on hydropower. The daily average spot price in July 2020 fell to an all-time low of below €2.4/MWh. At such extreme lows, most power production is loss-making.

Structural changes, such as increased dependence on intermittent power production, transfer challenges due to grid constraints, and the shift in merit order toward lower marginal cost production, will lead to increased price volatility and eventually weaken profits of conventional merchant generation activities in the Nordic region, it said.

It warned of more demanding thresholds for existing ratings unless volatility could be lowered with long-term hedges, power purchase agreements and a higher share of cash flow from regulated or long-term contracted activities.

Regulated activities tend to yield stable income, except maybe in Great Britain where the regulator Ofgem is proposing a major cut in allowable earnings for network operators such as National Grid for five years in the next price review. The final determination is to be published in December.