Vattenfall to curb forward sales of Nordic power amid price splits

p“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 Vattenfalls first quarter earnings.p

pThe stateowned company posted a 21 drop in firstquarter operating profits, largely driven by grid congestion that has driven down prices in northern Sweden, where large parts of its hydropower generation is located.p

pThe company hedges against price volatility by selling some of its future nuclear and hydropower production in the forward markets.p

pBy the end of the first quarter, it had sold 72 of its 2022 output at an average price of 28 eurosMWh and 53 of its 2023 output at 30 eurosMWh, its report showed.p

pVattenfall produced 81.2 terawatt hours TWh of nuclear and hydropower in 2021. p

pThe firm hedges itself against the socalled 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.p

pHistorically, the system and area prices have correlated well but now differed a lot, she added.p

p“When we have these large discrepancies, the system price is not a relevant proxy anymore for our production up north,” the finance chief said.p

pAhlfont said the impact was twofold, 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.p

pCutting its forward sales increased Vattenfalls exposure to shortterm market swings, but “this is the prudent way to act from a financial risk perspective,” she said.p