"Sheer panic" more likely to push up European power prices than actual shortage - energy consultant

A seemingly perfect storm resulting not only from the war in Ukraine but also from the extreme drought in the entire Alpine region and low water levels in rivers France is shaking European electricity markets, generating panic and contributing to a volatile situation, Mirko Schlossarczyk, partner at energy consulting company Enervis, told news broadcaster n-tv. However, he argued it is "unlikely that there will actually be a significant power shortage in Europe," as water availability is set to increase after summer. On Monday, 22 August, the day-ahead price for a megawatt hour on the electricity exchange jumped well over 100 euros -- significantly higher than the absolute price before this crisis, Schlossarczyk noted. “This extreme volatility shows the absolute nervousness that has gripped the market.” Concern in Europe over the impact of Russia’s invasion of Ukraine on gas supplies has intensified by short-term and unpredictable announcements of gas supply disruptions, he added. Exacerbating the situation has been the ongoing drought in the Alps and a severe dry spell in France, which has led to a decline in both hydroelectric and nuclear power. In France, more than half of the nuclear power plants are offline, mainly due to maintenance work and technical defects, but also because of the low water level in the rivers from which they take cooling water. Those factors alone are not enough to explain the massive price spikes, however,Schlossarczyk noted. “A heated market psychology and the sheer panic of some market participants of not being able to meet delivery obligations are also obviously having an effect.” The fear does not appear to be well founded, he added. The government “should at least partially cushion the enormous impact on consumers,” Schlossarczyk said. “This is not an energy policy issue, but first and foremost a social and socio-political issue. The challenge is: how to protect consumers while maintaining the price's steering effect.”

Many households and businesses in Germany already are heavily affected by inflation driven by high energy prices. While the rapid price rise for natural gas in the wake of Russia's attack on Ukraine so far has dominated headlines regarding energy price rises, a spill-over to the electricity market is becoming more likely in the next months, observers have warned.