By Anne Kauranen
HELSINKI (Reuters) - Finnish utility Fortum on Thursday said low liquidity and high price volatility have created a "worrying" situation in the Nordic power market and it may need government help to manage rising margin call costs.
Fortum's Chief Executive Markus Rauramo said trade volumes on Nasdaq's Nordic Commodities exchange had dropped 60% since February due to the exceptionally high electricity prices.
The Nordic baseload power contract for 2023 has risen six-fold over the same period, leading to soaring margin requirements, he added.
Margin calls arise when the gap between 'spot' power prices and the level at which utilities have sold their output on a forward basis becomes too wide, forcing them to post the margin as proof that they can deliver in the unlikely event of default.
As a result, the exchange traded futures markets had become "dysfunctional", Rauramo said.
Fortum together with its German subsidiary Uniper has 11 billion euros tied up in margins in the Nordics, compared to around 4 billion in March.
"The situation in the derivatives market is not only challenging for electricity producers but also for electric companies and hence consumers, who are increasingly dependant on daily volatile spot prices," he said.
Fortum has resorted to bypassing the Nordic exchange by striking bilateral deals with its electricity customers, to reduce its margin burden, Rauramo said.
"Fortum gets along at the moment but if the prices continue to soar, we will need more operating capital," he told reporters, adding the company was in talks on the matter with the Finnish state, its majority owner with a 51% holding.
He also called for the Nordic governments to consider a similar model to Germany where the government has ensured Uniper's liquidity via state-owned KfW bank.
Earlier on Thursday Fortum posted a second-quarter net loss of 7.4 billion euros ($7.4 billion) due to Uniper's soaring losses.
($1 = 1.0036 euros)