The European energy market finds itself in a state of continuous alert, as the ghost of the 2022 crisis returns threateningly over the continent.
Following the record June that sent the cost of electricity skyrocketing, meteorologists are warning of a new, prolonged wave of extreme heat that is expected to re test the endurance of the grids. With the demand for cooling hitting "red" and the supply being dramatically restricted due to unfavorable climate conditions, electricity prices insist on. very high flights.
Heatwaves are coming
The forecasts show an increased risk for further heatwaves in the United Kingdom, Spain, Germany, and France this month. The next wave of heat, although it is not expected to reach the extreme levels of June, could touch the heatwave threshold for the United Kingdom already by this weekend, according to the Meteorological Service (Met Office).
The temperatures in the largest part of Europe are predicted to fluctuate from 2°C to 8°C above seasonal normal levels, according to the meteorologist of Vaisala, Matthew Dross. By the middle of the month, France could become again the epicenter of the extreme heat, as the high pressure systems, the unusually warm seas, and the soils that have dried out from previous heatwaves reinforce one another, he reported.
The German next month front month contracts recorded a rise of 2.2% on Thursday, reaching 103.58 euros per megawatt hour on the Epex exchange. This price is marginally lower than the peak of June and close to the highest levels since January.
Reduction of the supply
The heatwave of June restricted the supply of electrical energy by reducing wind generation, restricting nuclear generation in France and Switzerland due to high temperatures in the cooling water, and restricting the availability of certain production units with natural gas. In parallel, it sharply increased the demand of electrical energy for cooling.
Last month, the average day ahead prices in Germany and the United Kingdom climbed to 109.50 euros and 115.76 euros per megawatt hour, respectively. This constitutes the highest level for the month of June since 2022, according to Epex Spot SE. The French prices reached their highest level since 2023.
"Another heatwave could place the electrical energy system under similar pressure, with low wind generation and restrictions on the nuclear fleet of France," stated Nathalie Gerl, lead analyst of energy market at the London Stock Exchange Group.
Risk for sharp price spikes
The markets are also watching the possibility of a repeat of the sharp price spikes observed during the heatwave of June. During that period, individual hourly prices reached up to 665.82 euros per megawatt hour in Germany and 313.36 euros in France, according to Epex Spot SE.
Despite this, the baseline supply conditions were not exceptionally pressured, Gerl noted. On the contrary, energy producers were repeatedly submitting evening offers far above their estimated marginal cost. The reason for this was that they had to factor in the risk of the production units not starting on time or losing their efficiency due to the extreme heat, increasing the probability of needing to buy replacement energy in a short period of time.
"The high evening energy offers observed during the last heatwave could reappear under similar conditions," she concluded.
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