Nordic hydropower deficit combined with rising gas prices pushes forward electricity prices to a two-year high

(1) Nordic forward power prices climbed to over a two-year high on Friday and recorded a third consecutive weekly gain, driven mainly by persistently below-normal hydropower reserves and strength in the European natural gas market. (2) The front-quarter base load contract posted a cumulative gain of around 13% this week, while next year's contract also rose, with both reaching their highest levels since December 2023, reflecting increasingly aggressive market pricing of a regional power supply crunch. (3) Nordic hydro reserves have remained negative since late December last year, with Friday’s shortfall widening to approximately 23 terawatt-hours; forecasts indicate continued rainfall below seasonal averages, suggesting further tightening of hydropower output and shrinking supply flexibility. (4) External energy linkages also played a significant role: wholesale electricity prices in the Netherlands and the UK found support amid escalating Middle East military conflict and Iran’s threat to block the Red Sea route, while next-year German power contracts rose as well and European carbon allowance prices edged slightly lower.