Europe’s winter power prices jump as gas supply concerns grow – Bloomberg
European electricity prices are heading into winter at their highest levels since the region’s energy crisis, as rising natural gas costs and supply disruptions linked to the Iran war put pressure on power markets, Bloomberg reported.
German wholesale electricity for January is trading above €180 per megawatt-hour on the European Energy Exchange, more than 60% higher than a year ago.
Natural gas has been the main driver as Europe struggles to refill storage amid stronger competition for supplies. The closure of the Strait of Hormuz has cut off supplies from Qatar, adding pressure to a market increasingly dependent on imported liquefied natural gas.
Reduced output from France’s nuclear fleet caused by heat and strikes, along with low hydropower stocks, has added to pressure this year.
Higher prices could increase household and business energy bills and add to inflationary pressures. U.K. household energy bills are forecast to rise 25% in January, though the impact across Europe will vary based on government support and utility hedging.
Europe is better positioned than during the 2022 energy crisis, when wholesale power prices exceeded €1,000 per megawatt-hour. The region has expanded LNG import infrastructure, cut fuel consumption and diversified suppliers, reducing the risk of shortages.
Higher wholesale prices could benefit European power producers. Jefferies estimates earnings next year at RWE, Engie and EDP Renewables could come in 10% above current estimates.
Renewable capacity has also helped contain costs. Baringa estimates European wholesale prices would have been 30% higher this summer without solar capacity installed since 2021.
Winter poses a greater challenge as solar generation drops and periods of cold, still weather can increase reliance on gas-fired generation.
Ulf Ek, chief investment officer at Northlander Commodity Advisors, said wholesale power prices could rise as much as 50% during a cold winter if Middle East energy supplies remain constrained.
