Will the gas-fueled electric chaos in Europe continue?

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What are the reasons behind power prices reaching or even exceeding €1,000/MWh in France and Germany last August?

Will tensions on gas and electricity markets continue in the coming months?

What are the structural reforms needed in Europe to solve the current energy crisis and accelerate the transition to a low-carbon economy?

To answer these questions, Natixis CIB Research energy specialists Joel Hancock and Ivan Pavlovic just released a comprehensive report accessible through
Natixis CIB Research website.

Their report highlights the combination of short-term and structural issues facing the European power sector that have fueled the surge in wholesale power price to unprecedented levels since the start of 2022: persisting tensions on gas supplies all across Europe, reduced generation capacity reserves, major nuclear outages in France, reduced hydro availability. They expect gas prices, despite having recently peaked, to stay high throughout winter, hereby contributing to maintaining high wholesale electricity prices in the next months, likely in excess of €300/MWh.

The report analyzes the chain reactions across European electricity markets caused by skyrocketing wholesale power prices: government interference in the functioning of retail or wholesale markets to protect end-consumers, mounting financial pressure on a few leading utilities, soaring margin calls on organized markets putting a strain on some utilities’ liquidity resources, etc.

While acknowledging the relevance of the set of emergency measures recently put forward by the European Commission to tackle the short-term implications of the current energy crisis in Europe, the report stresses the need for more structural reforms to help tackle the threefold challenge of energy security, affordability/price stability and contribution to climate change mitigation facing the European energy sector. In this perspective, it suggests an approach combining continued adherence to existing competition rules on wholesale markets and accelerated development of long-term bilateral power supply contracts, in particular "green" corporate PPAs for renewables energies and RAB-based remuneration frameworks for new nuclear assets.
 

Joel Hancock, vice-president, commodities specialist
joel.hancock@natixis.com

Ivan Pavlovic, executive director, energy transition specialist
ivan.pavlovic@natixis.com


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