(Bloomberg) – Benchmark electricity prices in Europe hit a two-month high as the profitability of power generation in Germany hit a record high.
A combination of fuel, electricity and carbon prices make up the so-called clean-dark and clean-spark spreads, a measure of the profitability of coal and natural gas stations. A surge in electricity prices along with rising carbon permit costs and lower fuel prices pushed spreads higher, with German coal margins for next year more than doubling over the course of the year. last month to hit a record high.
Europe’s energy crisis is getting worse. Gas prices have almost quintupled this year to reach levels high enough to prompt expectations that industry and manufacturers will soon need to cut production. A cold snap expected to worsen next week is boosting short-term contracts.
“The rapid rebound in the global economy after the lockdowns of 2020/2021, a cold and long winter in the Northern Hemisphere and a tight supply of renewable energy has led to a rapid increase,” said Carlo Cafaro, analyst and meteorologist at Marex Plc Group.
Longer-term contracts like the German coming year are generally more stable than short-term prices that follow climate change. The coming year rose for a fifth day, adding up 3.2% to 150.90 euros per megawatt hour, the highest level since October’s record high of 179 euros.
Soaring fuel and carbon prices are driving up production costs. Gas prices led a scorching rally, while carbon futures soared more than 140%, topping € 80 per tonne for the first time on Friday. Coal prices have almost doubled.
However, electricity prices across Europe have exceeded the levels implied by fuel and carbon costs in recent weeks, according to Glenn Rickson, head of European energy analysis at S&P Global Platts. While significant price risks remain, recent strength is overstated. He sees the German power in 2022 fall to 136 euros per megawatt hour at expiration.
A cold snap next week brings daily electricity contracts across Europe to near record highs. German electricity for Wednesday next week, when the weather company Maxar says sub-zero temperatures could hit Berlin, is priced at around 323 euros per megawatt hour, according to the broker’s data. This would be higher than the daily record of 302.53 euros set on October 6 on the Epex Spot exchange.
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The cold wave particularly hits France. The country is one of the largest net exporters in Europe. The prices there are so high that it imports from countries like Germany and Great Britain, the opposite of what usually happens during peak hours in winter.
Electricity demand in France is very sensitive to temperature variations when it is cold due to the widespread use of electric heating. In winter, demand increases by 2,400 MW for each drop in temperature of one degree Celsius, according to the RTE network operator.
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