By Nora Buli
OSLO (Reuters) – Swedish utility Vattenfall will reduce forward sales of its Nordic power generation as it seeks to minimise the negative impact of large price differences in the region, it said on Friday.
“We have made the decision to revise our hedging strategy and lower our hedge ratio in the Nordics,” chief financial office Kerstin Ahlfont said during a presentation of Vattenfall’s first quarter earnings.
The state-owned company posted a 21% drop in first-quarter operating profits, largely driven by grid congestion that has driven down prices in northern Sweden, where large parts of its hydropower generation is located.
The company hedges against price volatility by selling some of its future nuclear and hydropower production in the forward markets.
By the end of the first quarter, it had sold 72% of its 2022 output at an average price of 28 euros/MWh and 53% of its 2023 output at 30 euros/MWh, its report showed.
Vattenfall produced 81.2 terawatt hours (TWh) of nuclear and hydropower in 2021.
The firm hedges itself against the so-called system price, a reference price calculated by power exchange Nord Pool based on the bids and offers placed in the 12 different bidding zones that make up the Nordic market, Ahlfont said.
Historically, the system and area prices have correlated well but now differed a lot, she added.
“When we have these large discrepancies, the system price is not a relevant proxy anymore for our production up north,” the finance chief said.
Ahlfont said the impact was two-fold, as Vattenfall first paid the spread between the system spot price and its financial hedge price, because prices increased since the hedge was made. But on physical delivery of those volume, Vattenfall receives the price in the low price areas.
Cutting its forward sales increased Vattenfall’s exposure to short-term market swings, but “this is the prudent way to act from a financial risk perspective,” she said.
(Reporting by Nora Buli, editing by Terje Solsvik)
