The 4 fronts that will determine electricity prices in winter

There are four main parameters that will determine the levels at which prices will move current in Europe (and therefore also in our country) in the coming winter. So the… weather moods, the demand for natural gas in Asia, Russia’s stance on (now limited) exports to the “Old Continent” will determine the levels at which wholesale electricity prices and, consequently, household and business electricity bills will move.

It is also important that there are no major problems in power plants across Europe. In the focus are mainly the nuclear plants of France, which, due to the interconnections of the country with the rest of the markets of central Europe, play the role of a barometer in the fluctuation of prices throughout the EU.

It is indicative that last year’s extensive problems with the French nuclear portfolio added yet another concern to Europe’s energy sufficiency. This is because historically exporting France had to resort to electricity imports from Germany to meet its needs, while Berlin had to cope with the loss of Russian fuel imports.

Positive indications

It is worth noting, however, that the first indications are at least reassuring, if not optimistic. First and foremost, we may be in the middle of November, but the temperatures prevailing across Europe do not suggest that “Old Epirus” is heading towards the end of autumn. Therefore, for the time being consumptions are kept at low levels, with RES production covering a significant part of the energy needs.

Another positive consequence is to keep the filling of European gas storages at high levels, strengthening the “defenses” of the energy system in a worsening of weather conditions. The landscape is similarly favorable from the “front” of Europe’s hydroelectric reserves, which are moving at higher levels than last year.

At the same time, France’s EDF assures that all the problems that limited the use of its nuclear plants for about a quarter last year have been addressed. Thus, if nuclear production moves to normal levels, then the upward pressures on the whole of Europe’s wholesale markets will be limited.

The weather is a catalyst

On what will it depend whether these positive omens are confirmed? First and foremost from the weather conditions that will prevail. In fact, the evolution of the weather will affect electricity prices doubly, as it will affect not only the demand for electricity, but also the production from RES.

Typical are the forecasts of the ICIS research center, according to which a mild winter will “translate” into electricity costs lower by 20-25% compared to the previous winter season. On the contrary, if this winter is severe, with particularly low temperatures and for a long time, then the first quarter of 2024 will move at higher levels than the corresponding period of the previous year.

The “unknown X’s” in the gas

An important parameter will also be the balance between gas demand and supply, which will affect the cost of fuel and therefore electricity prices. If demand will depend largely on weather conditions (but also on the rates of recovery of productive activity in Europe), on the supply side the equation is more complicated.

First “unknown X” is the demand for gas from Asia. At present, the fact that dozens of tankers LNG are located off the coast of Europe (expecting a buyer from a member state) shows that European markets are a dominant priority for international producers and traders. However, nothing can guarantee that the data will continue to remain as it is in the coming months.

Even more unclear is the attitude that Russia will take, regarding the now limited gas exports to the “Old Epirus”. It is worth noting that in the European supply mix, Russian fuel now occupies a percentage of around 9%, from more than 40% that it held before the crisis. Therefore, all analysts agree that if there is a sudden closing of the Russian tap, then it is difficult for the E.U. will face a supply adequacy problem.

Such an eventuality, however, would de facto increase demand for LNG. It is therefore certain to put upward pressure on the cost of the quantities Europe will need to get through this winter.

(Republished from insider.gr)