Heat Wave Sends European Power Prices Surging From U.K. to Spain

(Bloomberg) -- Scorching heat is boosting electricity prices across Europe, adding to a long list of factors that have sent power costs surging this summer.

The extreme temperatures are boosting demand for cooling at a time consumption was already rising as the world emerges from the global pandemic. Spanish day-ahead power surged to a record, while prices in the U.K. climbed for a fifth day, the longest rising streak in more than a month, and German next-day rates were double the five-year seasonal average.

Power prices in Europe were already high as demand returned to pre-pandemic levels at a time generating electricity has become more expensive. The cost of natural gas and coal -- used to make power -- have jumped this year and supplies from renewable sources such as wind have declined.

“Increased demand for cooling is pushing up prices in a large part of Europe,” said Hans van Cleef, a senior energy economist at ABN Amro Bank NV. “With increased electricity demand in combination with lower availability of wind energy and high commodity prices, more upward pressure is seen.”

Western Europe is set to face above-normal temperatures for much of this week, according to weather forecaster Maxar Technologies. In the U.K., the Met Office issued its first ever extreme heat warning, with temperatures possibly reaching 33 degrees Celsius (91 Fahrenheit) in western parts of the country.

Spanish power for delivery on Wednesday rose 4.7% to 106.57 euros ($125) a megawatt-hour, an all time high, according to data from the Iberian power exchange OMIE. In the U.K., costs jumped 3.9% to 98.47 pounds ($134) a megawatt-hour on N2EX’s daily auction. German next day power dipped 1.9% to 89.99 euros after climbing above 100 euros earlier this month.

The cost of electricity has surged as Europe tightens its climate policy to meet a 2030 goal to cut greenhouse gases by at least 55% from 1990 levels, boosting the price of carbon emission permits. The price of natural gas has also jumped after a bitter winter left storage sites across Europe depleted.

“Gas prices remain high due to the low inventory levels,” van Cleef said. “Coal prices are still high and rising, and - as said – availability of renewable sources is not always even certain.”

©2021 Bloomberg L.P.