As an energy company with a strong portfolio of hydroelectric power stations, the weather is of central importance to Alpiq. Its forecast is increasingly a determining factor in our business. Martin Bolliger, meteorologist in our market analysis team, classifies the most important correlations – and gives a weather forecast for the next winter.
The upcoming winter will once again raise questions about whether we have a sufficient hydropower reserve. Is it possible to make any reliable predictions from a meteorological standpoint?
First of all, it’s important to mention that weather is chaos – so the weather forecast can change at any time. Long-term forecasts, such as for the coming winter, are particularly uncertain. But they’re still important in terms of showing us the general trend. Fifteen years ago, I didn't even look at these forecasts, but today I do because the development of meteorological models has come a long way. As things currently stand, the weather trends for the fourth quarter of 2023 look quite relaxed. That’s to say, generally, a combination of warmer temperatures and rainfall. The supply situation in Europe looks much better than a year ago. But there’s no guarantee of a relaxed winter on the electricity markets – the market is still very nervous.
The summer of 2023 was very hot and dry. From your perspective as a meteorologist at an energy company, this kind of weather doesn’t only bring advantages, does it?
I’d say the summer of 2023 was okay for the energy markets in Europe. Periods of intense heat were followed by cooler weather in between. This allowed energy supply and demand to stabilise. The situation is always particularly critical when strong and correlated weather anomalies occur, such as during a lengthy heatwave. This not only means extreme temperatures, which increases demand, but often also little wind and precipitation, which reduces supply. These weather extremes have generally increased in recent years. Unfortunately, this pattern is likely to continue in the future due to climate change.
Why are weather forecasts so important for an energy producer like Alpiq – and how has their relevance increased over the years?
The weather is decisive for the production of renewable energy from wind, solar and water. It determines when, where and how much renewable energy can be produced. Since renewable energy production has increased massively in Europe over the last decade and will continue to increase in the future, weather forecasting has become more important. As mentioned, this not only applies to short-term predictions for the next few days but, increasingly, forecasting long-term weather scenarios. The dependence on weather is also reflected in the numbers: wind generation accounted for just under 40 TWh of production in Germany in 2010. Today, it’s over 120 TWh and by 2028 it could be around 200 TWh.
How effective are precise forecasts of fluctuations in allowing us to optimise electricity generation and adjust our use of power plants?
Weather forecasts help an energy producer like Alpiq to produce energy as efficiently as possible and thus make an important contribution to security of supply. Fluctuations in the predicted generation levels can be an expensive challenge for electricity producers. In meteorology, the uncertainties in generation are captured by “ensemble” forecasts. Instead of a single forecast, many are made, providing a quantitative indication of what variations are possible. However, even a perfect meteorological forecast does not guarantee that there will be no fluctuations. Grid bottlenecks are also causing more production cuts, as we see in Germany. If the grid is overloaded, for example because there is more wind than expected, the number of generation units can be capped. Grid expansion in Europe is lagging behind the rapid increase in renewable energies.
Why do forecasts play such a crucial role in energy trading? Can you give an example?
Prices in energy trading are determined by supply and demand – and the weather has an influence on both. Windier weather increases the supply of wind power, meaning fewer expensive thermal power plants such as coal or gas are needed to cover demand. As a result, prices fall . During cold spells, demand for electricity goes up as more heating is used, which pushes up prices. So weather is a piece of the puzzle in energy pricing. Sometimes it plays an important role, sometimes a less important one – but it’s always a factor.
What information do you pass on to traders so that they can assess the trading opportunities and risks?
Our aim as meteorologists is to tailor the information we provide to traders as much as possible. We provide oral and written briefings in which we give assessments of the weather developments in Europe. It’s important that we break down the complexity of the weather forecasts to make it relevant for trading. We analyse data from different weather models and quantify the weather’s influence on supply and demand. The communication between trader and meteorologist is crucial – it’s vital that we speak the same language. If I, as a meteorologist, think like a trader, that’s a huge help.
Which individual parameters do you take into account?
The important ones are the temperature and the supply of wind, solar and water. But we also look closely at other interesting parameters. Because trading is interconnected globally, worldwide weather patterns are becoming increasingly important. Take tropical hurricanes: hurricanes can disrupt the scheduled shipping routes of liquefied gas tankers and thus delay the supply of gas, which is also relevant for energy trading.