EU power, gas prices smashing records amid drought, EdF’s nuclear plant setback

One-year forward contracts for the delivery of electricity in France have been setting all-time highs day after day. The heat is increasing the demand for cooling while low water levels in major rivers disturb the operation of nuclear power plants and the transportation of coal. The equivalent German benchmark has topped EUR 400 per MWh for the first time.

The gas shortage affecting Germany and other European countries, because of reduced deliveries from Russia, has been pressuring the price of the fuel as well as electricity upward for several months now. Extreme drought added to the imbalance: European ports are holding massive amounts of coal that can’t be delivered to power plants as water levels are too low for barging.

In France, struggling state-owned energy giant EdF was forced to reduce output at several of its nuclear power plants, since the water temperature in Rhône and Garonne is too high to cool the reactors sufficiently.

The company expects nuclear power production in the country to fall this year to the lowest level in more than 30 years. EdF also suffered a series of malfunctions in the past year in several of its nuclear plants.

Major rivers are warm, drying up

Meanwhile, Germany is reconsidering the decision to close its last three nuclear power plants by the end of the year. Chancellor Olaf Scholz has just stated that it could “make sense” to extend their lifespan even though he firmly opposed the initiative until as little as a month ago.

The government in Berlin has also pushed for delays in the planned closure of coal power plants and enabled retired ones to get fully back online. However, coal is scarce as the European Union banned importing the fuel from Russia and it takes time to get mines and logistics back into shape. On top of all the troubles, the Rhine is currently too shallow for the required volume of transportation by barges.

Of note, EdF has closed the second of two reactors at its Hinkley Point B nuclear power plant in the United Kingdom. Its operation has already been stretched for two decades and the facility was retired after 46 years of service.

Gas demand surging, hampering efforts to store it for winter

All said issues result in a rise in gas consumption at a time when European countries are scrambling to fill up underground storage facilities.

But there’s more. Gazprom said it is impossible to import the repaired engine from Germany for a compressor station for the Nord Stream 1 pipeline system. The Russian company cited sanctions and accused Siemens of breaching contractual obligations. Cutting gas deliveries through pipelines over the past months led to unimaginable spikes in the prices of gas and electricity.

Rhine barge costs to Basel in Switzerland have beat the record high that was set during the 2018 drought, according to Bloomberg’s data.

At the same time, energy trading firms are reaping unseen profits, while Russia is also getting huge premiums on much lower quantities of supplied gas than earlier. Fossil fuel companies are ramping up investments in production, but it will take time before the effects can be felt.

Energy prices at historic highs

Judging from the Dutch TTF futures for natural gas, a European benchmark, the market doesn’t expect prices to return to below EUR 100 per MWh before the spring of 2024. The International Monetary Fund advised European countries to increase energy prices for consumers to push them to save and switch to cleaner sources.

The one-year futures TTF contract for 2023 touched a record EUR 164 per MWh today at the ICE Endex exchange, and the 2024 price hit EUR 100.5 per MWh, also an all-time high.

The German baseload electricity price for one year in advance was virtually unchanged today at settlement at the EEX, at EUR 398.49 per MWh, but it traded above EUR 400 per MWh again after surpassing the threshold for the first time in the previous session.

The French equivalent futures prices have also been setting records for several days in a row. They settled at EUR 520.25 per MWh, compared to yesterday’s record of EUR 521.68 per MWh.