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    Record high power prices today in Germany and UK, with high prices across the rest of Europe

Summary

Following a small decline in power prices in most European markets last week, new highs were reached in several markets going into week 33. Fresh records were also set in both the gas and power futures market, with German power for 2023 surpassing €500 per MWh for the first time.

by: Rystad Energy

Posted in:

Complimentary, Natural Gas & LNG News, Europe, Global Gas Perspectives, Market News, News By Country, EU

Record high power prices today in Germany and UK, with high prices across the rest of Europe

The decline in European power prices from last week proved to be temporary, as prices once again surged in the first days of week 33. 

Daily average prices are back above €500 in Italy, France, and Germany, and Germany sees a new daily record for 2022 on the 17th of August, with €552 per MWh, on low wind and expensive coal and gas power. 

This is also the first day since January when Germany has had a higher daily average spot price than Italy, as Italy averaged €538 in the day-ahead market on 17th August. 

Prices in the UK also reached a record high for the year on the 17th of August, at €486 per MWh.  

Low wind speeds have been a factor too in the UK, increasing the gas-for-power demand.  

The British NBP gas price benchmark has also surged in recent days, increasing the cost of gas power generation in the UK. 

Norwegian power prices have also continued to increase, and prices in the most southern price zone, NO-2, have been at a level with the UK in the last three weeks.  

A new daily record was reached also in this price zone on the 17th of August, reaching €496 per MWh, more than 400 times higher prices than in the north of the country. 

Week 33 is so far on track to break the weekly records in most markets, and with a solid margin in France, Germany, the UK, and the Nordics. 

The monthly record may be broken as well, prices are up from July levels in Italy, France, Germany, and the UK, shown in figure 1 below. 

 

 

On the 27th of July, the German front-year broke the €400 per MWh limit for the first time, and less than a month later the €500 threshold was broken as well, on the 17th of August.  

The surge is connected to a similar rise in gas prices, as well as a large jump in coal future prices. 

The API2 front-year contract has been surging in recent days and closed at $290 per tonne on the 16th of August, close to the all-time high of $292 from late July this year. 

There has also been a rally in the carbon market, and prices are now at the highest level since February, currently trading at €94.4 per tonne on the December 2022 contract.  

In three weeks prices have increased by 24%. Increased carbon prices mean increased costs for fossil fuel generation, adding additional pressure on prices 

European gas prices have continued to rise over the last week, and spot prices are now very close to all-time highs again.  

On Tuesday 16th of August, the TTF day-ahead price closed at €221.5 per MWh, and at the time of writing trading at €225.1, very close to the all-time high from the 7th of March this year. 

In the futures market, the record has been broken for both the TTF front-month and front-year in the last week. 

The front-month is currently trading at €230.5 per MWh, at a premium to the spot contract and well above the record from March at €215.5. 

The rise in the front-year has been even more extreme, currently trading at €215 per MWh.  

This contract is now up 327% YTD, and more than 15 times higher than at the same time two years ago. 

The surge in both spot and futures prices can be explained by continued strong demand, especially from the European power sector, as well as the continued fear from market participants of possible gas shortages for the winter, boosting prices further, as well as the still limited gas flows through Nord Steam 1. 

Nord Stream 1 continues to run at 20% of capacity, where compressor issues continue to limit flows.  

It remains unclear if Germany will extend its three remaining nuclear plants beyond the planned closure date of 31. December, after Germany’s government denied a media report from Tuesday 16th August where it was stated that Germany had decided to prolong the lifetime of nuclear projects after all.  

It was furthermore stated that the decision would be taken in the wake of ongoing stress tests. 

The motivation for keeping the plants is clear from an energy security point of view, but also the reduced demand and cost savings on fossil fuels. 

In a scenario where the plants are shut down as planned, and it is assumed that all the potential lost generation would be replaced by natural gas generation, Germany could add 6.6 BCM of additional natural gas demand from the power sector.  

With the current price on the front-year contract for gas, that would correspond to a total fuel cost of €15.6 billion, which could potentially be avoided by keeping the plants online. 

Baltic spot prices reached the price ceiling of €4000 per MWh for one hour between 6 pm and 7 pm in the Nord Pool day-ahead auction for 17th of August, as supply failed to meet demand in this hour. 

Supply is currently weak in the Baltic grid, and import capacity from Finland, Sweden and Poland were running at maximum, causing the imbalance. 

A key factor was the Narva power plant in Estonia, supplying less power than normal as it is currently undergoing repairs and is expected to come online later this week.

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