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ENERGY

European electricity prices soar as tough winter looms

European electricity prices soared to new records on Friday, presaging a bitter winter as Russia's invasion of Ukraine inflicts economic pain across the continent.

Published: 27 August 2022 08:52 CEST
electricity pylons at sunset
Energy prices have soared in Europe as Russia has slashed natural gas supplies to the continent. Photo by Matthew Henry on Unsplash

The year-ahead contract for German electricity reached 995 euros ($995) per megawatt hours while the French equivalent surged past 1,100 euros — a more than tenfold increase in both countries from last year.

In Britain, energy regulator Ofgem said it would increase the electricity and gas price cap almost twofold from October 1 to an average £3,549 ($4,197) per year.

Ofgem blamed the increase on the spike in global wholesale gas prices after the lifting of Covid restrictions and Russian curbs on supplies.

The Czech Republic, which holds the rotating European Union presidency, announced Friday that it would convene an EU energy crisis summit “at the earliest possible date”.

Energy prices have soared in Europe as Russia has slashed natural gas supplies to the continent, with fears of more drastic cuts in the winter amid tensions between Moscow and the West over the war.

One-fifth of European electricity is generated by gas-fired power plants, so drops in supply inevitably lead to higher prices.

European gas prices on Friday reached 341 euros per MWh, near the all-time high of 345 euros it struck in March.

The war is not the only culprit in France.

The shutdown of several nuclear reactors due to corrosion issues has contributed to the French electricity price increase as power production has dramatically decreased in the country.

Only 24 of the 56 reactors operated by energy giant EDF were online on Thursday.

READ ALSO: France extends shutdown of four nuclear reactors amid corrosion problems

France, which traditionally exports electricity, is now an importer.

“Winter is going to be a tough period for all the countries in Europe,” Giovanni Sgaravatti, research assistant at the Bruegl think tank in Brussels, told AFP.

“Prices will stay high, possibly they can even go higher,” he said.

READ ALSO: Air-con, ties and lights: How Europe plans to save energy and get through winter without blackouts

Recession ‘probably unavoidable’

A Bruegel study found that European Union countries have allocated 236 billion euros from September 2021 to August 2022 to shield households and firms from rising energy prices, which began to increase as countries emerged from Covid restrictions and soared after the war.

In recent days and weeks, countries have announced energy-saving campaigns to encourage the public to reduce power consumption during the winter.

Germany announced Wednesday that the temperature of public administrative offices this winter would be capped at 19 degrees Celsius (66 degrees Fahrenheit) while hot water would be shut off.

The German measures also include a ban on heating private swimming pools from September and over the six months that the decree is in place.

Finland is encouraging its citizens to lower their thermostats, take shorter showers and spend less time in saunas, a national tradition.

French households are shielded by an energy price cap until December 31 for now.

Industries are also affected by the soaring energy prices.

Factories that produce ammonia — an ingredient to make fertiliser — announced the suspension of their operations in Poland, Italy, Hungary and Norway this week.

HSBC bank warned in a note that “recession is probably unavoidable” in the eurozone, with the economy shrinking in the fourth quarter and the first three months of 2023.

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MONEY

How much will energy bills in Norway cost this autumn and winter?

The last few winters in Norway have seen consumers pay steep energy bills despite a government subsidy scheme. So, how are things looking this year?

Published: 26 July 2024 11:17 CEST
How much will energy bills in Norway cost this autumn and winter?

Energy prices in Norway rocketed in the autumn of 2021, so much so that the government was forced to introduce a subsidy scheme for electricity bills.

Since then, a number of factors have kept bills high, such as fluctuating gas prices, low reservoir filling levels, and high gas prices on the continent bleeding into the Norwegian market.

More recently, several reports have suggested that energy prices in Norway are finally on the way down to more manageable levels. Annual inflation figures released by Statistics Norway earlier this month showed that energy prices fell by more than 20 percent between June 2023 and 2024.

Around 90 percent of Norway’s energy is hydropower, and a large inflow to reservoirs increased power production in the second quarter.

Currently, reservoirs in southern Norway are around five percentage points higher than usual for the time of year. However, northern and central Norway, which has had much drier and sunnier weather than the south this summer, has seen the filling level of reservoirs drop 11 percentage points, Olav Botnen, an analyst at Volt Power Analytics, told Norwegian newswire NTB.

Despite this, energy prices will still be lower in Norway’s north and central regions than in the south this winter. Even with the lower reservoir filling levels, prices in the north are expected to be lower than last year.

“Northern and central Norway are likely to get below 30 øre per kilowatt hour (kWh) for the rest of the summer, and around 45 øre per kWh for the coming winter. It will be a little cheaper than last winter, as expectations are now,” Botnen told NTB.

The reason for the lower prices in northern and central Norway this winter, despite lower reservoir levels, is that the region can also rely on wind power to supplement its electricity supplies.

The region also has a much higher power surplus than the south too, meaning it would take a lot for reservoir levels to affect bills.

While northern Norway can look forward to slightly lower bills, southern Norway won’t see too much of a difference compared to last winter.

“In southern Norway, the market expects around 45 øre kWh for the rest of the summer, August to September. For winter, expectations are around 80 øre per kWh. It is quite similar to what was delivered last winter,” Botnen said.

Meanwhile, southwestern Norway will have slightly higher prices for the rest of summer but similar prices to the rest of southern Norway in the winter.

“They are likely to get a price of 55 and 60 øre per kWh for the summer and the same price as the rest of southern Norway for the coming winter,” Bonten said.

One thing which could positively affect prices, according to the energy analyst Gro Klæboe from Volue Insight, is more stable gas prices.

The analyst said that stocks were looking good for winter, which would lower prices on the continent and have a positive knock-on effect for Norway.

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