Power futures market soars ever higher in Europe [GGP]
July ushered in a wave of new price records in Europe as continued supply tightness and heatwaves pushed demand higher still. Prices in Europe stayed relatively stable last week but remained at very high levels.
Widespread, intense heat has significantly impacted the continent’s power system for many types of generation, as well as other equipment such as power lines, substations and interconnections.
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Very low hydropower across Europe has been one of the important stories in Europe's energy landscape this year, which started long before the European summer even began.
However, the heatwaves in June and July added further pressure, with southern Europe hit especially hard. Italy and Spain, both significant hydropower producers, have around 40% lower hydropower output for the first half of the year compared to last year.
For thermal power plants, the heat has a more indirect impact in the form of technicalities for the operation of plants. One implication is warmer water for nuclear, coal and gas plant cooling systems, which has resulted in reduced operations across Europe.
Scorching weather also adds other forms of additional pressure on temperature-sensitive equipment, making efficient operation more difficult for thermal plants.
Another impact of hotter weather is the increased power demand, mainly caused by the increased need for electrical cooling.
We saw this impact in June, where some countries saw 3-8% higher power demand than usual for July.
Typically, hot weather also negatively impacts wind speed, and other sources must meet any reduction in wind power generation. In Europe, that is typically gas power, effectively increasing gas for power demand at the worst possible time.
Power prices in the two most expensive markets, Italy and France, saw a slight decline with a weekly average of €489 and €478 per MWh, respectively. Prices moved opposite in Germany and the UK, with a weekly increase of around 7%, reaching €380 and €335. Last week also concluded the month of July, and as expected in our previous market note, July ended up being a new monthly record for all the four mentioned markets above.
Italy, France, Germany and the UK all hit their previous records in March 2022, but now this was broken by quite a margin. Italy saw the largest increase compared to the previous record, with July's average price at 44% higher than in March, reaching €451 per MWh. The increase in the French market was the closest with a 36% increase, Germany with a 25% increase, and the UK with a 1% increase. Prices in Spain and the Nordic market fell compared to march, in Spain's case because of the electricity price cap which has been in effect since June 14.
In the Nordic regions, internal price differences are large, with southern regions strongly coupled with the high European prices, and Nordic regions with a massive oversupply of hydro and wind power, resulting in very low prices.
Forward power continues to rise as well, as the European winter is approaching, with a new record broken in both France and Germany over the last week. On July 27, France broke the €500 per MWh barrier for the first time and has continued to rise beyond that point, closing at €520 per MWh on the 2. August. Germany has considerably lower prices, but new records here as well, as the €400 MWh barrier was broken for the first time at closing 2nd of August.
Price drivers in Europe continue to be the high gas prices, expensive coal, the French nuclear situation, poor hydropower generation across Europe, and high power demand caused by warm weather.
On the gas side, prices have once again been rising at the beginning of week 31, with still Russian supply uncertainty being the main driver. TTF spot prices closed at €204 per MWh on the 2nd of August, close to a record higher, but still below the spike in early march. The front-month TTF is in the same range as the spot, trading at €206 at the time of writing.
Longer in time, the TTF front-year continues its increase as well, trading at €162.5 per MWh at the time of writing. This represents more than a 300% YTD increase and a 50.4% increase since the beginning of July.
There continue to be large price differences between the European gas price hubs as well, with British and Iberian hubs trading at a discount to the TTF. Large LNG imports and constraints in the European gas transmission network have been the driver of this.
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