Liquidity guarantees promised by Sweden and Finland to shore up the Nordic power derivatives market will support orderly trading at a time of extreme uncertainty, Nasdaq Nordic said on Monday.
The two countries announced on Sunday plans to offer up to $33 billion in guarantees to power companies and traders after Russia’s Gazprom (GAZP.MM) shut the Nord Stream 1 gas pipeline, deepening Europe’s energy crisis.
Two-thirds of the money would be put up by Sweden and, for the next two weeks, be offered to all Nordic firms trading in power derivatives in order to prevent a collapse of the Nasdaq Clearing system, the Swedish government has said.
The clearing house’s owner Nasdaq Nordic said in an emailed statement it believed Nasdaq Clearing and its members were well prepared for dramatic market price movements.
“We do acknowledge that this is an extreme time of uncertainty and the addition of government liquidity guarantees will add an extra layer of stability to support orderly trading and energy companies,” it said.
Lower gas flows from Russia before and after its invasion of Ukraine have driven up power costs, triggering paper losses on futures contracts and forcing companies to post more collateral with Nasdaq Clearing.
The Finnish government said its loans to power companies under the guarantee scheme would initially come at an interest rate of 10% plus the six months Euribor daily reference rate.
Even before the Nord Stream 1 closure, the requirement for such collateral hit 180 billion Swedish crowns ($16.6 billion), up from 25 billion in normal times after power prices rose some 1,100%, Sweden’s debt office said on Saturday.
Europe’s benchmark gas price on Monday rose by 35%, adding to the strain.
Finland’s budget document on Monday said the country should be prepared for derivatives costs to double or rise threefold and said a failure to meet those requirements could have big consequences.
“If several companies risk insolvency simultaneously, this could trigger a transfer of power plants to foreign owners. This is critical to Finland’s security of supply,” the government said in the document presented to parliament.
Swedish state-owned utility Vattenfall said it welcomed all initiatives to stabilise the market and said its own finances were stable. It declined to comment further on Sweden’s proposal to offer liquidity guarantees.
Peer Fortum (FORTUM.HE), majority-owned by the Finnish state, called on the authorities last week to take action to stabilise the market, adding that its standalone collateral tied up on the Nasdaq Nordic Commodities exchange had soared.
Fortum’s shares fell 8% on Monday to trade at an 18-year low.
($1 = 10.8225 Swedish crowns)