12.12.2023 | European Energy Markets Monthly, December 2023

First cold snap is no sweat for Europe’s energy markets

Andy Sommer


As Autumn drew to a close at the end of November, Northern Europe was gripped by a cold spell which saw temperatures in the UK and Nordics plunge well below the seasonal average. This stress test of European energy markets saw power prices in those countries surge on the back of increasing power demand, which continued to recover for a second consecutive month in November. However, year-to-date demand for 2023 remained below the same period last year and showed little sign of a structural demand recovery. In terms of supply, French nuclear production remained high, while hydro generation in most regions reached the upper end of historical ranges, thus limiting any power price jumps. Nordic hydro balance stood out, with its surplus turning into a deficit by early December. Finland, meanwhile, experienced noteworthy fluctuations in hourly prices throughout November, from -500 EUR/MWh (attributed to a bidding error) to 777 EUR/MWh, due to an unplanned outage at the Olkiluoto 3 nuclear reactor.

Sweden’s energy landscape attracted significant attention over the past month as an onshore wind farm sought bankruptcy protection, citing losses linked to a 19-year power purchase agreement (PPA). Adding to concerns, another Swedish wind farm faced bankruptcy this week, compelled by PPA-related challenges to renegotiate its 15-year PPA. Both these instances underscore the inherent risks associated with fixed-price baseload PPAs for renewable power plants, particularly in the face of heightened volatility and elevated spot power prices. Meanwhile, icing issues presented another risk factor for wind turbines, forcing developers to turn to the spot market to cover lost production volumes.

Further south, in the Netherlands, nationalist populist party PVV emerged as a dominant force in recent election results, posing a potential threat to the country’s green energy and climate policies. While PVV aligns with other right-wing parties on expanding nuclear power, they are alone in their demand to withdraw from the Paris Agreement and keep Dutch coal and gas plants open. Developments like this and the German budget gap discussions remind us to keep an eye on politics, given their potentially significant relevance for energy markets in the medium term.

Fuel prices further declined during the past month amid reduced geopolitical risks in Gaza and bearish market sentiment. Mild and windy weather throughout most of November curbed heating demand and gas-fired power generation, enabling EU storage to reach an unprecedentedly high level. Despite signs of recovery, however, energy demand remained at a significant deficit to pre-energy shock levels, while robust LNG supply countered any potential bullish market driver. In parallel, coal prices continued dropping on the back of mild weather and the subdued macroeconomic outlook. December 2023 EUA prices followed the same downward trend amid plunging demand for emission allowances. Overall, European energy markets are entering the winter season with abundant fuel supplies and robust inventories. Only a combination of multiple supply risks or extended cold weather periods have the potential to test the resilience of the European winter energy outlook.  


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The accuracy, completeness or relevance of the information which has been drawn from external sources is not guaranteed although it is drawn from sources reasonably believed to be reliable. Estimates regarding future developments and other forward looking statements regarding commodities and therewith connected derivatives mentioned in this document may be based on assumptions that may not be realized. Axpo reserves the right to change the views reflected in the document without notice and to issue other reports that are inconsistent and reach different conclusions from the information presented in this document.

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