Nordic Power Prices Surge to 3-Month High Amid Drying Reservoirs and Colder Forecasts

The Nordic front-quarter baseload power price has spiked to a three-month high of 23.7 euros/MWh, driven by a perfect storm of drier-than-expected weather, dwindling hydropower reservoirs, and geopolitical grid constraints. This surge, a 14% jump from earlier levels, underscores the region’s vulnerability to climate volatility and its heavy reliance on hydropower—a dependency that could push prices even higher if dry conditions persist.

The Reservoir Crisis: A Marginally Full but Fragile System

Nordic hydropower reservoirs, which supply roughly half the region’s electricity, are in a precarious state. While aggregate reservoir levels remain at 70.3% full—14.2% above the 2020–2024 average—the short-term picture is dire. Water reserves available 15 days ahead (PCAEC00) have plummeted from 5.2 terawatt-hours (TWh) above normal to 3.85 TWh above normal in just weeks. This decline reflects a sharp drop in precipitation since late 2024, with Norway’s reservoirs typically hitting their annual minimums in April/May before spring runoff.

The drop raises red flags: even a marginal surplus of 3.85 TWh is insufficient to withstand prolonged dryness. With hydropower generation already strained, the region faces a stark choice—rely on costlier thermal plants or brace for further price spikes.

Weather and the “Dunkelflaute” Threat

Colder-than-expected temperatures and dry conditions are compounding the crisis. European weather models predict below-normal temperatures across Scandinavia through early summer, reducing demand for air conditioning but stifling wind and solar output. The “Dunkelflaute” phenomenon—periods of simultaneous low wind and solar generation—could occur 2–4 times annually by 2025, each lasting up to 48 hours. During these windows, hydropower becomes critical, but dwindling reservoirs may force utilities to burn imported fuels, pushing spot prices even higher.

In early 2025, spot prices already spiked 33.4% to 88.95 euros/MWh, reflecting the immediate strain on supply.

Grid Constraints: The EstLink 2 Outage

Geopolitical risks amplify the volatility. The EstLink 2 interconnector between Estonia and Finland, which normally allows 350 MW of cross-border power flows, remains offline until August 2025. This outage limits the region’s ability to balance supply across borders, further tightening liquidity in the Nordic market.

The Market’s Dual Dynamics

Investors face a bifurcated outlook:
- Short-term volatility: Prices could soar if dry conditions persist, reservoirs dip below critical thresholds, or Dunkelflaute events coincide with grid outages.
- Longer-term optimism: Forward prices for the front-year contract hit 35.5 euros/MWh, up from early 2025 lows, signaling traders’ belief in sustained supply tightness.

Winners and Losers in the Energy Shuffle

The pain is not evenly distributed. Firms like Orrön Energy, a hydropower producer, saw EBITDA margins shrink as dry weather curtailed output. Meanwhile, thermal generators and grid operators could benefit from higher prices and grid congestion premiums. Investors in spot-market volatility—such as traders betting on price swings—might also profit.

Conclusion: A Tipping Point for Nordic Energy Markets

The Nordic power market is at a crossroads. With reservoirs strained, weather forecasts bleak, and grid constraints looming, prices could climb further—potentially testing 2023’s peak of 36.7 euros/MWh for front-year contracts. However, a sudden rainfall or a delayed Dunkelflaute could ease tensions.

The key metrics to watch:
- Hydropower reservoir levels: A drop below 3.0 TWh above normal could trigger panic buying.
- EstLink 2: Restoration in August might ease grid bottlenecks, but not before summer’s peak demand.
- Spot prices: If they exceed 90 euros/MWh, it signals a structural imbalance requiring intervention.

For now, the data paints a clear picture: Nordic power prices are in a high-risk, high-reward phase. Investors should prepare for turbulence—and perhaps position for a market that could redefine its ceiling in the coming months.