European electricity prices soared to new records as a prolonged heat wave disrupted power markets already under pressure from Russian cuts to the continent’s gas supplies.
German baseload power, the benchmark European price for delivery next year, rose more than 5 percent on Thursday to a record €455 per megawatt hour. This is five times higher than the price this time last year. The equivalent French contract rose 4 percent, surpassing €600 per megawatt hour for the first time.
Electricity prices, heavily influenced by the cost of gas, the main source of electricity generation, have been rising year-on-year as gas prices have more than quadrupled.
A prolonged European heat wave has exacerbated the problem in the past month by disrupting generation capacity and increasing demand for electricity.
Low wind speeds due to high temperatures reduced wind power generation, while falling water levels along the Rhine river disrupted the delivery of coal to Germany’s power stations, said William Peck, power market analyst at ICIS, a commodity analysis firm.
In France, where rivers are used to cool many of its nuclear power plants, low water levels have affected production, he said. More than half of France’s nuclear power capacity is currently offline for maintenance.
“These high prices are a market trying to get somebody somewhere to do something to stop the blackouts,” Peck said. “They’re saying: Any plant that’s currently offline will be fully funded to ramp up.”
France usually exports the excess electricity it produces. But this year it has become a net importer, meaning neighboring countries are burning excess gas to generate electricity for France as Europe tries to conserve supplies for the winter.
Germany exported about 600,000 MWh of electricity to France on a net basis in June, compared with 300,000 MWh imported from its neighbour, according to data from Germany’s Federal Network Agency.
An interconnected European electric network means record forward electricity prices in Europe are driving up costs in the UK. According to Peck, this is the main reason behind recent predictions that average UK energy bills could rise by more than £5,000 next year.
Last month, the UK was exporting 10 percent of its own domestic electricity demand to France each day.
A lack of investment and management during the pandemic, disruption to gas markets after Russia’s invasion of Ukraine and now a summer heat wave mean higher prices will continue “for a long time,” Peck said.