Europe’s Worsening Energy Crisis
European natural gas and power prices have surged again to record levels —upending industries, angering consumers and panicking politicians – and this is well before the peak winter period arrives.
While markets have been focused on Germany’s ability to maintain power amidst growing uncertainty about securing sufficient Russian gas supply (via Nordstream) for this winter, there has been growing pressure on the French nuclear fleet (as the remaining backbone of Europe’s tradable power market) to keep the lights on.
However, across the last 48 hours French power prices spiked to 2000 EUR/MWh following the unplanned shutdown of just under half (26) of the 57 reactors in the nuclear fleet for emergency maintenance following the discovery of cracked pipes. France’s nuclear fleet — which supplies over 70% of the countries power — was already struggling to maintain supply of water following a recent heatwave and the worst drought in 70 years. nuclear reactors for emergency maintenance following the discovery of cracked pipes. France’s nuclear fleet – which supplies over 70% of the countries power – was already struggling to maintain supply of water following a recent heatwave and the worst drought in 70 years.
Due to its nuclear fleet, France had been a standout amongst recent policy announcements across the European Union regarding energy security, that has seen a reluctant switch back to coal-fired generation to keep the lights on.
However, with power shortages now firmly impacting two of the largest contributors to the European power system, consumers and businesses across Europe are facing crippling energy bills. Chemical and heavy metal industries that use gas for their operations are already curtailing operations across the continent.
EU countries have agreed to cut gas consumption by 15% this winter, which will be extremely challenging, and demand for coal has jumped sharply to help compensate. However, these markets are already extremely tight. Accordingly, prices for coal, gas and power will remain elevated – a view that Commodity Insights has held since early 2021.
Europe’s over-reliance on renewables (which have under-performed) and gas imports from Russia have left it extremely vulnerable following the sanctions on Russia. On top of this, a severe drought across much of Europe will limit the role of hydro in the power mix as evidenced by Italy’s top utility Enel closing multiple hydro sites due to low water levels.
Instead of building a power network based on security of supply, Europe threw itself behind renewable energy which has proven to be unreliable and inconsistent across the last 18 months. Recent events have finally changed government thinking, which now belatedly sees energy security as inextricably linked to national security – as it always should have been. This situation was sadly totally avoidable and is a case of significant regulatory and policy failure. This winter will severely test the unity and resolve of the European union as each country looks at their own security of supply and energy needs.
Unfortunately, for many Europeans, the pain is only just beginning.