As power prices reach record levels, the European Energy Crisis deepens

On Thursday, European power prices reached new heights as a heatwave impacted energy supplies and wildfires raged across France.

These gains are due to a tight natural gas market — used to fuel power stations — as Russia reduces supplies and Europe replenishes its stockpiles for winter. The squeeze has been exacerbated by a drop in nuclear reactor output and low wind and hydro generation. This raises the possibility of intervention to reduce demand.

Annegret Groebel (president of the Council of European Energy Regulators) stated in a Bloomberg Television interview that Russia could cut off gas. This would lead to rationing. Blackouts can be avoided but it takes a lot more preparation than we are doing right now.

The benchmark German power rose 6.6% to record 455 Euros per megawatt-hour on European Energy Exchange AG. The French contract saw an increase of 7.8% to 622 euros per megawatt-hour. This is equivalent to a barrel of oil’s equivalent energy. It costs about $1,100.

This summer’s heat waves have increased demand, but also caused supply disruptions. Key waterways, which are used for hydropower generation, cooling nuclear plants, and shipping energy commodities, have been drying up.

France is in an extremely dire situation as half its nuclear fleet has been taken offline for maintenance. The nation normally exports power but has become a net importer this year, leading its neighbours to use more gas to keep the lights on. The country has been experiencing wildfires, which led President Emmanuel Macron and 10,000 French firefighters to enlist help across Europe.

Patricio Alvarez from Bloomberg Intelligence, an analyst said that Europe’s historically low nuclear power output and low water reservoirs have created a shortage of supply. This can only be filled with dispatchable resources like coal and natural gas. This increases the resilience of gas demand in a period of diminishing supply from Russia.

The UK issued a warning on Thursday evening regarding the tight supply of power. Although National Grid ESO, the grid operator in the country, claims there will be enough generation, it is yet another indication of the problems Europe’s electricity system faces this year.

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