Record-Breaking Energy Prices Could Soar Even Higher In Europe
The European electricity market is in crisis as a perfect storm is driving up prices to ever greater heights. The timing couldn’t have been worse as countries across the continent are reopening and energy demand is rising. Most signs point towards the likely continuation of the current situation while there is a chance that things could get worse. There is an opportunity to balance the electricity market towards ‘normal prices’, but that means geopolitical concessions which not everyone is willing to make.
Rising costs are a consequence of bad luck when it comes to the weather, geopolitical developments, and ambitious decarbonization policies. According to Julien Hoarau, head of EnergyScan, the analytics unit of French utility Engie, “the problem hasn’t even started yet. Europe will face a very tight winter.”
Unusually cold weather during the last heating season increased demand for natural gas that is supplied by domestic production, imports, and underground gas storage. Under normal circumstances, these storages are filled in the summer period when demand is low and prices favorable. This year’s buying season is interrupted as there is less natural gas on the market. As usual, East Asia is willing to pay a premium that draws LNG cargoes to the Far East. Russia, on the other hand, doesn’t seem to be willing to fill the gap this time.
Furthermore, Scandinavia’s electricity export capacity is drastically less than usual as drought has hit the region this summer. Several submerged cables connect hydropower-rich countries such as Norway and Sweden with the Netherlands, Denmark, and Germany. However, water levels are unusually low, meaning there is less cheap electricity to export to the south.
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