Europe Braces for More Record-High Power Prices This Spring

(Bloomberg) --

Record power prices across Europe are set to rise even higher as war sanctions threaten to cut fuel supplies from Russia.

Daily prices in Germany, the U.K. and Spain rose to all-time highs for Tuesday as low wind-power output exposed markets to unprecedented costs for natural gas and coal. And the situation likely will get worse, with contracts for coming months changing hands at even higher levels as traders brace themselves for the full market impact of a potential fuel shortage.  

“The risk of losing gas and coal deliveries to Europe is pushing up prices,” said Bengt P. Longva, a senior analyst at energy consultants StormGeo Nena AS in Oslo. “It is an unknown territory for all parties.”

German day-ahead power rose to a record 487.57 euros ($530.82) per megawatt-hour for Tuesday on the Epex Spot exchange. So far, daily prices in March have averaged 350 euros, while the contract for next month was trading as high as a 675 euros. The future contract is a gauge of the unhedged average monthly day-ahead price in the daily spot market. 

U.K. daily power prices hit a record 460.96 pounds ($608.17) per megawatt-hour on Epex Spot, while prices for a similar contract on the rival N2EX exchange remained below 400 pounds. 

The main drivers for high prices are the international sanctions against Russia that threaten almost half of the supply of gas and coal Europe needs to feed its thermal power plants. Benchmark Dutch front-month gas futures surged above 300 euros per megawatt-hour for the first time, while northwest European coal contracts for next year traded as high as $285 per ton, just shy of last week’s record $288. 

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