European countries are facing a sharp increase in electricity prices. In France, they reached a record level of 443 euros per megawatt-hour. Germany is not far from its neighbour, coming close to €432 per megawatt-hour. Indications exchanges Nord Pole testifies to the dire situation in Austria and Belgium – in these countries, tariffs rose to more than 430 euros per megawatt-hour.
This is happening against the background of a sharp rise in the cost of gas, as one thousand cubic meters of it on the ICE London Stock Exchange on December 21 broke the $2,000 barrier. With these indicators, Europeans risk facing a shortage of fuel, which will lead to a recovery in the electricity market. Analysts warn that with each new closure of thermal plants, the situation will only get worse, in which case even 450 euros per MWh may seem like a boon.
Alina Dzos / Gazeta
What will happen to the exchange rates?
If the negative trend in the European energy market continues, it will be increasingly difficult for private companies to support tariffs for end consumers at the same levels. Now only in Poland and Scandinavia, residents pay less than 300 euros per megawatt-hour for heating. At the same time, France, one of the largest exporters in the European Union, has concrete problems with domestic tariffs, which automatically hit the German market, experts say.
According to Alexander Frolov, Deputy Director General of the National Energy Institute, a number of factors led to this situation at once. The key is the mass shutdown of coal-fired thermal power plants in Germany and the shutdown of two nuclear power plants in France.
In the fall, France also had difficulties exporting electricity to the UK due to an accident on the interconnector. Until the spring of 2022, it will not be possible to solve the problem. In Germany, by the end of 2021, 13 coal units and several nuclear power plants will be decommissioned. The expert emphasized that the losses are huge, about 6.4 gigawatts.
Frolov added that in the event of abnormally cold weather in Europe, the demand for electricity from homes will grow more and more, which will not allow to reduce stock prices. Difficulties are now occurring in Scandinavia, where Sweden recently acquired part of the transit capacity from Norway. For this reason, it will be very difficult for Oslo to increase supplies to the continental market.
Stanislav Mitrakhovich, senior researcher at the Russian Government’s Financial University, suggested that in this scenario, electricity prices in Europe would continue to grow in early 2022, approaching 500 euros per megawatt-hour.
In turn, the record growth of tariffs on the stock exchange will inevitably affect the sharp increase in prices for final consumers.
There are mechanisms such as price caps – capping price increases for households, and utility companies taking the difference. If the stock market continues to put pressure on them, in the coming months we may witness massive bankruptcies of energy companies. The analyst concluded that in April 2022, when the next price ceiling revision is made, its cost may increase by tens of percent.
A number of energy companies in Europe have already gone bankrupt in recent months. In early November, three UK utilities (Omni Energy, Ampoweruk and Zebra Power), which serve tens of thousands of consumers, announced their closures. Due to the record growth in gas prices since the beginning of September, 17 energy companies have already befallen a sad fate. On December 21, the German company Neckermann Strom AG, which had been a supplier of clean energy and gas, was added to the list of affected European companies. It represented up to 13,000 families throughout Germany.
Hope for coal is not so
The sharp increase in China’s domestic coal generation capacity has stabilized the situation with rising raw material prices in Asia. China produces approximately 48% of all coal found on the planet, and consumes about 51-52%. Beijing recently loaded its coal mines to full capacity – they were closed, but amid a power shortage, they were reactivated. Thanks to this, the PRC was able to satisfy its energy appetite. As a result, prices for “dirty” raw materials in Asia have now fallen below $300 a ton, experts say.
According to Frolov, China recently increased its daily consumption of coal to 12.5 million tons, which is equivalent in size to the three-month norm for the use of raw materials in Ukraine. By boosting domestic production, Beijing has increased supply, bringing down the energy fever that has been going on in the country since October 2021.
Exchange rates for coal in Asia fell by 60%. At the same time, the cost of raw materials began to fall in Europe. Previously, the price there was above $ 320 per ton, which is three times higher than the record levels of previous years. This has led to the fact that now the European Union, bypassing its own requirements, is intensively replacing gas with coal.
But because of their “green” obstinacy, the Europeans will not be able to take full advantage of China’s gift, ”the expert explained.
Frolov added that Europe (mainly Poland) could not use coal-fired thermal power plants at full capacity due to the EU’s “green” strategy.
“If in 2020 Germany produces 57 TWh of electricity from gas, in 2021 it is already about 50 TWh. Wind generation also sank – by 10-15 TWh. But the FRG has been shutting down coal mines four or five years ago. The analyst summarized that the Poles are in general hysterics now, they are required to close the dirtiest coal mine in the European Union, Turov, or pay 500,000 euros per day. ”
At the same time, there are already four countries in the European Union that have completely abandoned coal generation – Austria, Belgium, Portugal and Sweden. The pressure of the European Union on Poland, whose energy balance is almost 80% dependent on fossil fuels, only exacerbates the situation with electricity shortages on the continent. In other words, Frolov concluded that Europe was cutting off its energy “oxygen”.
How to lower electricity prices
In theory, European fuel oil and diesel generation could help reduce high exchange fees for electricity. However, most of the capacities currently available are used as emergency fuel sources to power gas-fired thermal power plants. In addition, the share of fuel oil and diesel in the European energy balance is negligible – 0.1-0.2%, experts say.
According to Mitrahović, Sweden has made the biggest progress in substituting gas for fuel oil, which recently restarted a fuel oil thermal power plant that had been idle for several decades before. However, as soon as the free capabilities are brought to the European market, the cost of the resource will immediately rise, nullifying all efforts.
The problem is that high prices for gas and electricity are now dragging down the exchange quotes oil. Before, everything was the other way around. In terms of oil, EU gas futures are now worth around $250 a barrel. The expert pointed out that the demand for fuel oil in this regard could be seriously affected.
According to Frolov, the most effective way to replace expensive gas in the production of electricity can be the abolition of “green” certificates of nuclear power generation. For example, for the same coal, the cost of a document that pays for greenhouse gas emissions has tripled since the beginning of 2021 – from $30 to $90 per ton of harmful substances.
“The same story is now observed in the nuclear market.
If corn and gas are recognized as “green,” it will reduce costs for power plant owners by tens of thousands of dollars. We can only commend this European Union decision.
But if that happens, Europeans will publicly admit that the green strategy was a mistake. For this reason, revocation of certificates now seems highly unlikely, ”concluded Frolov.
Last weekend, Acting Prime Minister of the Czech Republic Andrej Babis announced the intention of the European Commission to recognize the “green” status of nuclear and gas power generation. According to him, this will happen before the end of 2021. European Commission President Ursula von der Leyen Babes promised to implement the relevant law. However, experts interviewed by Gazeta.Ru are skeptical reaction For such a perspective.