Hydro production in NO2 likely to reduce as dry conditions keep reservoir levels low

At the end of May, I published an article explaining the impacts of the very low snow levels in Norway-South. This created expectations of low inflows to hydro plants in Norway and low reservoir filling levels as we move towards autumn.

During June and July, precipitation levels have been lower than normal. At the same time, very high temperatures have caused higher evaporation levels than normal, while inflows have been very low, particularly in the NO2 price zone.

For Norway-South we currently see reservoir filling levels of about 63%, well below our estimate of 70% in May’s article.

Despite this, very strong production levels were observed in NO2 in July. Low wind production on the continent also forced near-maximum exports from NO2 (southwards) even though the area found itself with a weakening hydrological balance.

The table below shows the hydrological details for the different price-zones in Norway-South. The difference between NO2 and the other areas at the end week 30 is clear to see.

The overall hydro balance of -12.5 TWh in Norway-South is close to the lowest observed level since the year 2000. NO2 is now lower than ever, despite which, we can still observe very strong production for the season.

Based on this sensitive situation, this article looks at the reservoir outlooks for NO2 until 2026. The study is based on 42 weather year inflow scenarios from the SMHI HYPE-model, and scenarios of average production level during the period (week 32-52). 

Inflow, production and reservoirs in NO2 so far this year

The following graphs show the actual development for inflows, production and reservoir filling for NO2 until week 32 of 2025.

Since 1 May, the accumulated inflows are about 12 TWh, which is 10 TWh lower than normal. The 2025 number represents the lowest inflow since the year 2000.

10 TWh of inflow loss means that we have seen a loss of around 30% in the reservoir curve since the start of May. The reservoir level by week 31 was at about 56%, close to the level we saw in 2022 (49%). Before we do any detailed studies of the reservoir curve towards the new year, we can already see that the reservoir curve (provided we see normal precipitation and inflow conditions) will be quite close to the minimum observed curve levels by the end of 2025. Very strong precipitation incidents will clearly be required to lift the curve (like we saw in 2021 and 2022). On the other hand, a dry scenario will likely lead to reduced production, higher power imports and spot price in NO2 either equal to or higher than the German spot price.

The chart above shows the very strong production seen during July. Due to low wind power availability on the Continent, caused by Hitzeflaute conditions, exports from NO2 increased to record levels.

Production will most likely be reduced as continental wind power levels return to normal, so the increased production observed in July should only have a limited impact on the reservoir curve. Reservoir levels fell about 3% because of the strong production in July.

Inflow scenarios in NO2 to week 52

Our climatic scenario study of the expected inflow levels until the end of week 52 is shown below (weekly resolution). The chart shows the weekly average scenario (black dotted line) and 23 different scenarios for the weather years 1979-2021. The statistical high (ninety-fifth percentile) and statistical low scenario (fifth percentile) as well as the long-term average (2000-2024) are also included.

The average inflow scenario starts at the current level and will not reach long-term normal levels before end of September.

In the table below, you can see the accumulated inflow scenarios for weeks 32-52 according to different percentiles.

The expected average is 2.9 TWh lower than the long-term average normal, which corresponds to the snow/groundwater deficit. The variation band for high vs low inflows is about +/- 9 TWh. This number represents a variation band of about +/- 27% reservoir filling by the end of week 52 (provided that we see normal production levels).

Reservoir outlooks until week 52 – reduced production will most likely be needed

Based on the inflow scenarios and variation of the production profiles (relevant percentages of the long-term normal curve) we have developed estimated the reservoir curves until the end of week 52.

The production curves are scaled from the long-term normal in order to avoid an extremely low reservoir level by end of week 52.  A statistical fifth percentile level by the end of December will present an obvious risk of a supply squeeze during spring 2026, but I plan to publish a more complete study of Norway-South (NO1+NO2+NO5) in the coming weeks to cover the total power market situation in the area.

Our main production scenario follows 90% of normal production levels during between weeks 32 and 52. With this production level, the average reservoir scenario follows the statistical fifth percentile. In this ninetieth percentile of production scenario, we can see that the fifth percentile reduces reservoir levels to around 25% by week 52, which is not an acceptable level for the power supply. In such a dry situation, production will need to be reduced to 65% of normal, something which we did see for periods during autumn 2022 as production was reduced in order to allow greater levels of imports from Europe.

Spot price outlooks for NO2: September to December 2025

The following is a simplified evaluation of the spot price outlooks for NO2 based on current market prices for NO2 and Germany. At the end of July. spot prices for NO2 were about EUR 15/MWh lower than Germany due to strong exports and bottlenecks on the southbound interconnectors from NO2.

Generally speaking, market prices at the end of week 31 indicated continued net exports from NO2 towards Germany. However, a reduction of the hydro production level will most likely be needed in NO2 during autumn and early winter due to the low reservoir fill levels.

The table below shows the actual spot price for June and July, as well as the latest projections for August onwards.

The average price difference between NO2 and DE is expected to be about EUR 25/MWh for the rest of the year. This means that the NO2 price could rise around EUR 25/MWh if production is reduced below normal levels. It may rise even higher if maximum import levels are required.

We can conclude therefore, that there is a significant potential for the NO2 spot price to narrow the continental prices this autumn due to hydrological scarcity, even if the hydro situation in the other Norway-South zones, NO1 and NO5, is not as severe as in NO2.