Electricity prices reach record highs across Europe

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A solar project in Spain, where wholesale electricity prices broke records on four consecutive days last week. Image: Lightsource BP.

Supply disruptions in the coal and gas sectors have contributed to record electricity costs across Europe, leading to calls for more support for renewables generation to mitigate future price rises.

The average price of electricity in Spain and Portugal’s wholesale market broke new records on four consecutive days last week, reaching an average of €140.23/MWh (US$166.11/MWh ) on Thursday, data from market operator OMIE revealed.

German power spot prices, meanwhile, averaged nearly €83/MWh last month, by far the highest delivery of any August since trading started in 2000, according to research from Swiss utility Axpo, while the UK’s baseload power price reached a record high yesterday.

“The likelihood remains that the record run in prices will continue for now,” said Andy Sommer, team leader of fundamental analysis and modelling at Axpo Solutions. “The Atlantic hurricane season is in full swing, bringing risks to liquified natural gas (LNG) supplies, Russia’s gas production capability is unclear and European gas and coal inventories remain significantly below normal.”

Coal power generation has risen to compensate for the decrease in gas production that has resulted from high gas prices. However, utilities are unable to switch from gas to coal at a low price as they need to pay a lot for the carbon that is emitted from coal generation assets, said Carlos Torres-Diaz, head of power and gas markets at consultancy Rystad Energy.

Despite this, it was revealed that a reduction in wind generation meant the UK fired up an old coal plant yesterday that is due to be decommissioned next year. Electricity system operator National Grid ESO confirmed that coal made up around 3.6% of the UK generation mix on average across the day, compared to just over 5% each for solar and wind.

While Europe’s wind generation has been lower this summer compared to previous years, solar output in the continent reached record levels in June, according to data from Rystad.

Torres-Diaz said the rising prices emphasise the need for more renewables: “This is definitely a good time for renewable projects to move ahead and for governments to really incentivise the development of renewable energy because you see that these fluctuations in the fuel prices can affect potentially the power prices.”

With gas prices expected to remain high in the coming months and electricity demand rising as more workers return to offices, consumers are asking if there are ways to limit the electricity bill hikes.

Among the measures introduced in Spain include the extension of a 7% power generation tax break into Q4 2021, while in the country’s upcoming renewables auction the government plans to allocate 600MW of solar and wind capacity for fast-tracked projects that can be online in summer 2022.

The addition of renewables resulting from the auction “will directly reduce the price of electricity” by displacing energy produced from more expensive and polluting plants, Spain’s energy and environment ministry said when the auction was announced last month.

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