By Daniel Fineren

LONDON (Reuters) - Weather and renewable energy supplies across much of western Europe could be hit this winter by the North Atlantic Oscillation (NAO), a phenomenon that can exert a powerful influence over temperature and rainfall.

Meteorologists say a negative NAO usually points to colder, calmer and drier winters in northern Europe and wetter, windier weather across the Iberian Peninsula and Italy as westerly winds from the Atlantic are pushed south.

The NAO has been negative since last autumn, pointing to a possible repeat of last year's winter with wind and hydro dampening Spanish gas demand, cold weather stoking UK gas use, and reduced German wind power lifting fossil fuel demand.

"We are in the midst of the longest streak of negative NAO on record," Todd Crawford, chief meteorologist at Weather Services International (WSI), said.

"In the negative phase, the NAO drives colder winters across UK and much of the mainland, while the main storm track shifts southward across southern Europe."

Crawford, who specializes in long-term forecasting for the energy industry, said a negative NAO could also mean a drier winter in Scandinavia -- heavily dependent on hydropower -- and calmer weather in Germany, which has Europe's biggest wind capacity.

RECORDS

Last winter the NAO was at its strongest negative value since records began nearly 190 years ago, and Britain had its coldest winter since 1978 -- despite the general warming trend over the last few decades -- driving gas heating demand to record highs at the start of 2010.

Unusually cold, calm weather in northern Europe also meant that German wind farms produced much less than their potential, according to the German wind energy association.

Meanwhile, Spanish wind power output hit record highs in stormy weather which also filled reservoirs to brimming -- forcing operators to run hydro plants hard and shut down gas and coal power plants to prevent system overload.

The average NAO index between Gibraltar and Iceland for December 2009 to March 2010 was -2.54, when Spanish hydro reserves swelled to well above the 10-year average, while reserves fell far below average in winter 2007-2008 when the NAO was +1.37, according to the University of East Anglia's (UEA) Climate Research Unit.

Crawford, who foresaw the bitter cold that bit Britain in early 2010 three months earlier, said October is on track to be the 13th month in a row with a negative NAO -- breaking the previous longest streak during the last 60 years of nine months.

"The three-month averaged NAO-Index has been in negative territory for a remarkable time now," the German Wetter Center said in its winter outlook published in early October. "The last time we saw a similarly long negative phase was in 1968."

The privately-owned Wetter Center said it expected a drier and colder autumn and early winter than average for 2010 and 2011 partly as a result of the negative NAO.

Although meteorologists tend to agree on the likely impact of the phenomenon on the weather, predicting its ups and downs is tricky. Betting heavily on it could backfire.

"It is a very long streak of negative NAO -- but the NAO has a strong chaotic element, so it may be premature to get too excited," Andrew Watson, a professor at the School of Environmental Sciences at the University of East Anglia said.

"We don't know that it may not suddenly swing back to a positive phase and stay there."

While a negative NAO could ensure Spain's wind turbines are more productive than normal this winter, marginalising other plants, Germany -- the only European country with more wind capacity -- could see subdued wind output again this winter after a dip in production in 2009.

"If we see a repetition of conditions like last year, for the German power market it means that we will see slightly higher prices due to the cold temperatures and lower wind levels, but also fewer price spikes as a result of the more stable weather conditions created by the (NAO) phenomenon," a German utility trader who specializes in weather impacts said.

Norway, which generates nearly all its electricity from hydro power plants, has seen below average reservoir levels since 2009, is also worried about low reservoir levels going into winter.

(Additional reporting by Henning Gloystein; editing by Sue Thomas)