Market prices for electricity remain significantly higher than before the energy crisis
Published: Monday, Jul 29th 2024, 12:20
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Electricity remains surprisingly expensive. Market prices have fallen significantly compared to the highs of 2022 and 2023. However, they are still above the level before the start of the war in Ukraine. Gas prices have a major influence.
The wholesale prices for electricity are currently surprisingly high, says ZKB analyst Armin Rechberger to the news agency AWP. This is despite operating nuclear power plants in France and abundant rainfall. In addition, demand for electricity has actually risen less sharply than expected due to lower demand for electric vehicles and only a moderate increase in consumption due to new heat pumps.
The prices for an electricity supply in the following year (annual contract) have ranged from €68 to €100 on the European electricity markets so far this year, with €90.70 being paid most recently. At the beginning of 2021 - i.e. before the crisis - prices were still around €50 per megawatt hour. However, electricity consumers paid up to €1,000 per megawatt hour at the record high during the energy crisis in August 2022. In 2023, the market then saw prices of up to 200 euros.
Depending on the gas price
The main driver for the European electricity price is the price of gas. If gas-fired power plants have to run to cover electricity demand, electricity prices rise in line with gas prices because gas-fired power plant operators have to cover their costs.
According to BKW, the Italian and French electricity markets have always been closely linked to the price of gas. However, with the phase-out of nuclear energy and the ongoing phase-out of coal power, the correlation for the German market has also increased further.
During the energy crisis, France was the "panic market" and saw higher market prices than Germany, Switzerland and Italy. According to the Bern-based electricity supplier, French prices are now lower again due to the high availability of nuclear power plants, with Switzerland also increasingly taking its cue from France.
The benchmark contract for gas, the front month, currently stands at around EUR 32 per megawatt hour. At its peak in August 2022, a megawatt hour cost ten times as much, but only half as much at the beginning of 2021 - before the crisis - at around EUR 16.
Weather plays a major role
In view of the numerous influencing factors, it is difficult to forecast how prices will develop. In the coming months, "the global weather situation" will play an important role, says Andy Sommer from Axpo. "Will the storm season in the Atlantic cause LNG delivery problems?" Or "How cold will the winter of 2024/25 be in Europe and Asia?" LNG refers to liquefied natural gas, in this case from America.
Future Russian gas supplies through Ukraine are also crucial for the European supply situation. "As there is a prospect that the remaining Russian gas transports through Ukraine to Europe will end by the end of this year at the latest, Europe will be even more dependent on LNG to balance the market for the coming winter," says Alpiq.
Internationally, however, the gas markets should ease when new LNG terminals go into operation in the USA and Qatar next year, says Axpo expert Sommer. In addition, the growth of renewable power generation sources in Europe is likely to continue.
In the medium term, however, the demand for electricity should increase with the further electrification of many industrial sectors. There is also another important factor that can make electricity more expensive: the price of CO2 emissions.
CO2 certificates are issued and traded via the EU Emissions Trading System. The supply will become increasingly scarce as a result of political will. As a result, and due to the gradual inclusion of the shipping sector and a greater focus on industrial emitters, the cost of CO2 emission certificates is likely to rise in the coming years, says Sommer.
©Keystone/SDA
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