Why Germany’s Power Price Fell More Than Elsewhere in Europe

(Bloomberg) -- Electricity prices in Germany are falling faster than in other major economies in Europe as the impact of the coronavirus is seen hurting industrial demand.

Industry makes up about 44% of German electricity consumption, more than in other European nations, and so its power use is likely to be one of the hardest hit by the coronavirus, according to Hanns Koenig, principal analyst at Aurora Energy Research Ltd. German electricity use is exposed not only to domestic shutdowns but the likely ensuing recession would hurt its reliance on power exports, he said.

With almost a third of its electricity generation mix coming from coal and lignite, the most polluting fossil fuel, German power prices are more exposed than other countries to this year’s 39% drop in the carbon permits that utilities, factories and airlines need to cover their emissions. By contrast, France gets almost two-thirds of its power from nuclear and is less sensitive to swings in the pollution rights.

German year-ahead power futures are down 25% since the start of the year compared with 19% in France and 21% in Italy. Operators of coal stations need to buy about twice as many carbon allowances than gas plants. Nuclear stations don’t need any.

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Power prices across Europe have fallen. In Poland, where coal accounts for most of its power generation, year-ahead electricity prices are only down about 17% in 2020. In the Nordic area, next-year contracts have slumped 37% as a mild, wet winter has left it with a surplus of hydropower, the source of most of the region’s electricity.

©2020 Bloomberg L.P.