Electricity prices across Europe saw a significant rise in May 2024, driven primarily by increases in gas prices and carbon emissions costs. This trend was evident in most EU countries, with notable exceptions being France and Sweden.
Price Increases and Market Trends
In May 2024, the average monthly wholesale day-ahead prices in the EU demonstrated a substantial increase compared to April. According to Ember’s data, the prices varied significantly across different countries. Italy saw a notable rise to €94.9/MWh, a 9.4% increase month-on-month (m/m). Germany followed with a 7.8% increase, bringing prices to €67.3/MWh. Spain experienced a dramatic rise, with prices more than doubling to €30.3/MWh. In contrast, France and Sweden saw declines, with France dropping by 4% to €27.09/MWh and Sweden experiencing a substantial 52.3% decrease to €23.04/MWh.
Factors Influencing Prices
Several factors contributed to the fluctuations in electricity prices across Europe. The Iberian market, which had maintained the lowest electricity costs for three consecutive months, lost this position to France in May. Despite historical records in solar energy production, wind energy output fell in most countries during this period. The generation mix changes, coupled with higher gas prices and increased CO2 emissions, significantly impacted the cost of electricity.
For instance, in Germany, the day-ahead electricity price fluctuated dramatically throughout May, starting at €0.37/MWh and peaking at €108.3/MWh on May 27. The Italian market recorded the highest weekly average of €102.6/MWh from May 27 to June 3.
Future Price Projections
Looking ahead, the European Energy Exchange (EEX) has forecasted electricity futures prices for July 2024. The basic settlement price on the German market is expected to be €83.86/MWh, while the French market is projected at €43.38/MWh. Spain and Italy are forecasted to see prices of €73.5/MWh and €114.5/MWh, respectively.
Impact on Ukraine
In Ukraine, the electricity market faced its own challenges. The weighted average price of electricity on the day-ahead market (DAM) rose by 26.6% m/m in May, reaching 4221.9 UAH/MWh (€97/MWh). Demand for DAM increased by 21.01% compared to April, while supply decreased by 7.71%. The Ukrainian power system has been severely affected by ongoing conflicts, with significant losses in generation capacity due to targeted attacks on energy facilities. Consequently, Ukrenergo has implemented blackouts for both residential and industrial consumers.
To cope with these challenges, Ukraine has significantly increased its electricity imports from Europe, with plans to expand from the current maximum of 1.7 GW to 2.2 GW. Furthermore, the National Energy and Utilities Regulatory Commission (NEURC) raised electricity price caps for businesses in June, increasing by 20% during evening peak hours and more than doubling at night.
European Industry Concerns
The rising electricity costs have also raised concerns among European steelmakers. ArcelorMittal has urged German authorities to adopt a clear industrial policy to support the green transformation of its assets in the country. The company highlighted that competitive energy prices are crucial for its planned €2.5 billion investment decision, expected by mid-2025. Similarly, the German steel association WV Stahl called for reduced electricity costs for small and medium-sized enterprises, emphasizing the need for competitive prices to stabilize transmission tariffs.
Gas Prices and Market Sensitivity
Despite European gas storage facilities being over 70% full as of June 1, 2024, the gas market remains sensitive to various factors. Russian gas exports to Europe increased by 39% year-on-year in May, reaching 89.5 million cubic meters. However, concerns persist about the continuity of these supplies, particularly given potential legal issues and geopolitical tensions.
Unplanned supply disruptions from Norway have also caused sharp reactions in the European gas market. On June 3, the price of the European benchmark TTF gas rose to over €38/MWh, the highest level this year, due to a failure at Norway’s Nyhamna gas processing plant.
Europe’s dependency on LNG imports from the United States and Qatar continues, with recent declines in U.S. LNG imports due to rising demand in Asia. This competition for cargoes has necessitated higher European gas prices to attract shipments.
Conclusion
The electricity market in Europe is experiencing significant volatility, influenced by a combination of rising gas prices, carbon emissions costs, and changes in energy production dynamics. These factors are shaping the market outlook and impacting various sectors, from domestic consumption to industrial operations. As Europe navigates these challenges, the focus remains on balancing energy costs with sustainability and industrial competitiveness.
