Analysis: Costly winter ahead as electricity prices in Europe rise

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FRANKFURT / LONDON / PARIS September 10 (Reuters) – Record hike in energy prices that pushed electricity costs in Europe to multi-year highs is unlikely to ease before year-end , which portends an expensive winter heating season for consumers.

The main benchmark electricity contracts of the EU and France have both doubled so far this year due to a confluence of factors ranging from the economic recovery in Asia – which has spiked coal prices and gas – to the political will to increase European carbon emission permits, rising oil prices and low local production of renewable energy.

The EU’s benchmark electricity contract, German base power Cal 2022, on Friday set a new contract record of 97.25 euros ($ 115.09) per megawatt hour (MWh), while its French equivalent was right next to a record 100.4 euros / MWh.

Wholesale electricity prices in Germany at the start of the year

Even though wind power supply patterns and Russian gas deliveries are seen as wild cards in the market, the current environment means a significant tightening in electricity supply is likely, traders and analysts say.

Going into the fourth quarter and the onset of winter, prompt and forward prices are gaining strength from tight supply fundamentals, while the forecast for cool and dry weather points to sustained demand and growth. ‘a limited hydroelectric supply.

“All of our metrics on the weather and the fuel market are bullish,” said Georgi Slavov, head of fundamental research at brokerage Marex Spectron.

The biggest unknown is the Nord Stream 2 (NS 2) gas link between Russia and Germany, which could be operational in 2021 and increase Europe’s tight gas stocks.

At around 70%, gas stocks are below normal after a year of weak imports in which Asian buyers grabbed liquefied natural gas (LNG) and European industry recovered faster than normal. expected decline in demand due to the COVID-19 crisis.

At the same time last year, inventory levels were 93%, according to data from industry group GIE.

Construction of the 55 billion cubic meter per year NS 2 pipeline is complete, poised to double Russia’s gas export capacity via the Baltic Sea, but the German regulator has yet to give the green light. that could take months. Read more

“As soon as the market realizes that there is a real flow going through it, the gas market will go down,” Slavov said.

Demand for gas from power plants has been high due to below average wind speeds in Europe, limiting electricity production from wind farms.

CIHI Energy analysts said wind generation in Germany over the next two weeks is expected to average just 5 gigawatts (GW) per day, compared to an average of over 10 GW for the previous September three.

This is only a tenth of the possible total.

“If there are times again when wind power is declining, which is always the nature of wind, prices will be high again,” said Roy Manuell, analyst at ICIS Energy.

Other costs impacting electricity prices, such as carbon permits, are also unlikely to budge.

The EU’s European carbon benchmark contract, currently at 62.4 euros per tonne, remains close to a historic record set this week, supported by more ambitious climate targets which increase the cost of pollution, but also because high power generation activity means buyers need more permits.

In the complex interactions between fuels and carbon, demand for coal has increased as power producers seek to avoid sky-high gas prices.

With coal-fired power plants emitting double the amount of carbon dioxide as gas-fired power plants, this in turn has led to increased demand and higher prices for carbon permits.

European prices for steam coal for power generation are reaching 12-year highs and 13-year highs in Asia.

At least one factor, nuclear availability in the main electricity exporter, France, should bring peace of mind as engineers have worked hard to improve the fleet – although across Europe the situation for nuclear is mixed, as power plants in large markets like Britain and near Germany.

Current French daily nuclear availability is between 45 GW and 47 GW for September, or around 73 to 75% of the total installed and between 6 and 7 GW above the five-year average, according to ICIS and data from the network company. RTE. .

Availability in November and December is expected to be close to 90%.

($ 1 = 0.8450 euros)

Reporting by Vera Eckert, Susanna Twidale and Forrest Crellin; Editing by Veronica Brown and Jan Harvey

Our standards: Thomson Reuters Trust Principles.



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