European power prices fall, but long-term contracts continue to rise towards new records [GGP]
European power prices remained very high over the last week, but show signs of easing, as most markets saw declining or stable prices in week 31 and at the beginning of week 32, with the key driver being lower gas spot prices.
Italy remains the most expensive market but has seen falling prices two weeks in a row, averaging €461 per MWh for the first days of week 32, a 10% reduction to week 30.
France follows behind but has seen an even steeper reduction in prices with a 27% reduction in the same period.
The gap between French and German prices has now closed completely, with close to identical prices for the last five days.
The UK and the Nordic system price have both seen an increase in prices so far in week 32, with the Nordic system prices reaching a new year high on Monday 8th of August.
The most southern price zone in Norway reached €344 per MWh as a daily average that day, while prices in the most northern price zone NO-4 only averaged €1.5 the same day, more than 200 times cheaper.
The very different fundamentals in the south and the north of the Nordic region have resulted in the gap, as there is currently a large oversupply of hydropower and wind power in the north, with limitations on transmission capacity to the south.
The southern region has the worst hydropower situation seen in many years, in addition to interconnections to the continent, resulting in stronger coupling between Norwegian and continental prices.
The Norwegian government has ruled in favor of extending the support for consumers of electricity, reimbursing prices above a certain level.
In addition, Norwegian politicians have stated that they “cannot rule out the possibility of electricity rationing in the winter”.
Furthermore, they have opened discussions on restricting exports through the country's interconnectors to the UK, Netherlands, and Germany, to make sure hydro levels are sufficient and to prioritize domestic supply security, but how this potential measure will be implemented remains to be seen.
It has already caused concerns in the UK, which relies on imports of French and Norwegian electricity during peak periods.
Norway has done its utmost to be a reliable energy supplier to Europe through the current crisis, particularly on oil and gas exports, but it remains to be seen if it can do the same with power.
The crisis facing Norway and Europe reveals the greatest challenge for renewable power in the context of an energy security crisis– upgrading transmission lines and grids so that power can be shifted around as easily as gas through pipelines.
As mentioned, a driver for lower prices on the continent is the reduction in gas spot prices seen over the last two weeks.
The TTF spot is currently trading at €190 per MWh, a reduction of 9.3% since the peak on 27. July.
LNG imports to Europe stayed high in July as well, with a slight increase compared to June, driven by a large increase in French imports.
Total European gas storage stood at 72.2% on Sunday, compared to 59.2% at the same time last year.
The injection rate has also been stable and high in the last two weeks.
A large gap still exists between the European gas price hubs, with Iberian and British prices at a large discount to the TTF in the Netherlands.
The gap has been reduced slightly over the last two weeks with declining TTF prices and fairly stable prices in UK and Spain.
There has been less of a reduction in TTF front-month contracts, and the front-year has just continued its increase, currently trading at €165.5 per MWh, a new high for the year.
This has impacted the long-term power constraints as well, which have continued to rise.
Just one week ago, the french front-year broke the €500 barrier for the first time and has just accelerated since then, currently trading at €562 per MWh, a 301% YTD increase.
The German front-year also broke a barrier last week, reaching €400 for the first time, and the growth since then has been more modest, currently trading at €416. This represents a 240% increase YTD.
Despite the current gas supply crisis in Europe, gas ended up as the largest overall power supply source in Europe in July, which shows how few alternatives European countries have for power supply.
This was the first time in two years that nuclear was not the largest overall source of power supply in Europe, for a whole month.
Reasons for this include the current very low nuclear availability in Europe, poor hydropower generation caused by heatwaves and droughts, low wind power generation as normal in the summer months, and limited possibility for most countries for large-scale gas-to-coal switching since so much capacity has been decommissioned in recent years.
The German Federal Network Agency (BNetzA) has received a stream of requests from the industry asking for exceptions on natural gas rationing.
Germany is currently in phase 2 of a three-phase emergency plan to cut natural gas demand, following the supply crunch on disruptions of Russian supplies since early July.
Affected industries include steel, glass, pharmaceutical, and chemical industries, which all are large gas consumers.
A spokesperson from BNetzA stated, “Blanket exceptions are not provided in the current law” and that regulators are in “constant dialogue with the industry to prepare for the supply emergency”.
The French nuclear regulator, ASN, extends exceptions to the strict rules on water discharge from french nuclear power plants.
The rules concerning the maximum temperature of the water released from nuclear plants into rivers are due to environmental concerns.
In recent weeks water than normal water in french rivers has forced several french nuclear plants to reduce production, and the regulator has now ruled that “it is a public necessity to favor the production of electricity of nuclear origin and therefore remain production despite of the exceptional climate conditions”
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