EU Electricity Market Report 1Q2022

Investment Analysis Clubs Macro Economic Trends and Risks
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The electricity market report shows how the impact of international sanctions to Russia and the fear of supply disruption have contributed for electricity prices to reach historical levels in the first quarter of 2022. The European Power Benchmark averaged 201 €/MWh in this period – 281% higher than in the first quarter of 2021. Electricity consumption decreased slightly (-1%), supported by a mild winter and the impact of high electricity prices.

The largest year-on-year electricity wholesale price increases in EU countries were registered in Spain and Portugal (+411%), Greece (343%) and France (+336%), with Italy reporting the highest quarterly average price (249 €/MWh), which was 318% higher than in the same period in 2021.

Carbon allowances registered a new peak in early February, climbing above 96 €/tCO2, fell in early March and bounced back to prices around 80-85 €/tCO2. For the first time since the rally in gas prices started, TTF prices stopped supporting the price of EU allowances.

Despite increased levels of fossil fuels generation, the share of renewable energy managed to reach 39%, outperforming fossil fuels (37%) in the first months of 2022. Compared to the first quarter of 2021, renewable generation increased its output by 1% (+1 TWh) as a result of an increase of 20% (+20 TWh) in onshore wind, 31% of solar (+8 TWh) and 8% of offshore wind (+1 TWh) on a yearly basis, despite hydro generation decreasing by 27% (-28 TWh). In the same period, a climb of 6% (+17 TWh) of fossil fuels and a drop of 9% (-16 TWh) of nuclear generation was registered.

https://ec.europa.eu/info/news/high-volatility-and-geopoliti…

Jaak

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Following a continuous rise in prices in the last quarter of 2021, monthly average wholesale baseload electricity prices in Central Western Europe (CWE) started to decrease in January and February 2022, before it reached historical levels in March 2022. Indeed, wholesale electricity prices reached an unprecedented peak in March (273 €/MWh), following the Russian invasion of Ukraine on 24 February 2022.

On top of expensive gas, historically low levels of storage stocks and global LNG tightness in the last quarter of 2021, the invasion of Ukraine in February has further exacerbated the high-energy prices crisis throughout 2022. Compared to Q1 2021, the average baseload price in the region increased by 302% to 207 €/MWh in the reference quarter. Meanwhile, average peakload prices increased by 291% to 219 €/MWh.

• In France, nuclear generation has drastically decreased, reaching a new record low in March 2022. EDF has lowered expectations of nuclear availability for 2022, on account of unprecedented high number of outages and some delay in the return dates of multiple reactors. Nuclear generation decreased from 7 TWh in the first week of January 2022 to slightly more than 5 TWh in the last week of March 2022. Subdued nuclear generation continued well into Q2 2022, and it reached a new low in the last week of May (4.5 TWh). Among other factors, the reduced nuclear fleet availability is keeping the French forward contracts in premium over Germany (see Figure 15). The French president set out a new policy on nuclear in February 2022, aiming at the construction of six new EPR reactors (10 GW) and the revision of the planned reactor closures.

• The Eurotunnel interconnector (1 GW ElecLink) started commercial operations on 25 May, with UK power flowing into France. The link has boosted interconnection between France and the UK to 4 GW. However, the total interconnection capacity between the markets is limited to 2.8 GW due to the repairs on the 2-GW IFA-1 link.

• In Germany, three of the remaining six reactors (Brokdorf, Grohnde and Gundremminge) permanently ceased power operation on 31 December 2021, as a result of a national nuclear power and coal phase-out policy. The three reactors combined a capacity of 4.2 GW (respectively 1.4 GW, 1.5 GW and 1.3 GW). These closures added extra tightness and combined with expensive gas prices, triggered record highs of German power prices in the last quarter of 2021. The Russian invasion of Ukraine has reignited the debate in Germany on the closing of nuclear reactors, regarding the important share of gas import from Russia in the country. However, the extension of the nuclear running time has not been considered by the German government. In June, the government triggered the second level of its emergency gas plan and announced its plan to reactivate 10 GW of coal capacity in reserve to mitigate the impact of Russian gas cuts.

https://ec.europa.eu/info/sites/default/files/energy_climate…

Jaak

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Jaak, I appreciate your posts about energy, but I’m confused by all the detail. Please write a summary, in your own words, of your opinion of the overall impact on the Macro economy of Europe. Will this cause a recession? How long would these impacts last? Which industries are most likely to be impacted?

Thanks,
Wendy

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Jaak, I appreciate your posts about energy, but I’m confused by all the detail. Please write a summary, in your own words, of your opinion of the overall impact on the Macro economy of Europe. Will this cause a recession? How long would these impacts last? Which industries are most likely to be impacted?

Thanks,
Wendy

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I posted the details about European energy situation because of the many false statements being made on this board. There is too much focus on nuclear power as being some kind of silver bullet which it is not.
The focus should be on natural gas and oil demand. Europe has plenty of coal, and they will use it if required.

The Europeans are all scrambling to see how they can meet their energy requirements for their public and their businesses because of Russian fossil fuels reductions. It is not just Germany that is in trouble, every country is in trouble. France is now the biggest problem because it now has to import electricity from its neighbors whereas in the past France was an exporter of electricity to it neighbors.

Prices for fossil fuels are high for consumers and businesses for all European countries. Public and businesses will suffer and this will cause a recession in 2023. There is hope that Europeans working together can develop new overseas energy partners, increase local power generation and transmission, increase energy sharing, and increase energy efficiency. If these efforts can be completed by the end of 2023, then the recession will end.

Jaak

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