European electricity prices have soared to new records as the prolonged heatwave disrupted power markets that were already under strain from Russia’s cuts to the continent’s gas supplies.
German baseload power for delivery next year, the benchmark European price, was up more than 5 per cent on Thursday at a record €455 per megawatt hour. This is five times higher than the price this time last year. The equivalent French contract was up 4 per cent, exceeding €600 per megawatt hour for the first time.
Power prices, which are heavily influenced by the cost of gas as a key source of electricity-generation, have been rising all year as the price of gas has more than quadrupled.
The prolonged European heatwave has added to the problem in the past month by disrupting generating capacity, while also driving up electricity demand.
Low wind speeds because of the high temperatures had reduced wind power generation, while falling water levels along the river Rhine had disrupted the delivery of coal to power stations in Germany, said William Peck, power market analyst at ICIS, a commodity analytics firm.
In France, where rivers are used to cool many of its nuclear power plants, low water levels had also affected generation, he added. More than half of France’s nuclear power capacity is currently offline for maintenance.
“The prices this high is the market trying to get someone somewhere to do something to stop blackouts,” Peck said. “They are saying: any plant that is currently offline is going to get absolutely loads of money to ramp up.”
France usually exports the excess electricity it produces. But this year it has become a net importer, meaning that neighbouring countries are burning additional gas to generate electricity for France just as Europe is otherwise trying to conserve supplies for the winter.
Germany exported about 600,000 MWh of electricity on a net basis to France in June, compared with 300,000 MWh of imports from its neighbour a year earlier, according to data from Germany’s Federal Network Agency.
The interconnected European electricity network means that the record forward power prices in Europe are also driving up costs in the UK. This was a key reason for the latest predictions that average UK energy bills could surge above £5,000 next year, according to Peck.
Last month, the UK was exporting the equivalent of as much as 10 per cent of its own domestic electricity demand each day to France.
A lack of investment and maintenance during the pandemic, disruption to gas markets following Russia’s invasion of Ukraine and now the summer heatwave meant the high prices would continue for “a very long time”, Peck said.