In Europe, prices are panicking on the electricity market

The European electricity market is not done with its irrational exuberance. Power prices for delivery in 2023, especially during the winter, soared again, with market players in France, Germany and Benelux anticipating a strong supply-demand imbalance during this period. Costs for delivery in early 2023 peaked at 840 euros per megawatt hour (MWh) in Germany on Friday August 26, and even nearly 1,100 euros in France. Very far from the 100 euros at the end of summer 2021 and the 50 euros in normal times. As a result, France has one of the highest electricity prices in Europe, while the low tariffs due to nuclear power have until now provided it with a competitive advantage.

On a market, it is the cost price of the last unit necessary to equalize production and consumption which determines the equilibrium price and is then imposed on all operators. “This is the case with the so-called “day-ahead” spot market. [la veille pour le lendemain] electricity: we call [sur le réseau] the power stations in order of increasing operating cost and, for each hour of the day, the price is aligned with the cost of the last power station called, called marginal”, explain the energy economists Christophe Béguinet and Jacques Percebois (University of Montpellier), in an article published Tuesday, August 23 on the site of the think tank Confrontations Europe. “And it is most often the operating cost of the marginal gas plant which, today, determines the price per MWh. »

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But the price of natural gas supplying power plants continues to rise. The markets anticipate the continued decline in volumes delivered by Russia (notably via the Nord Stream 1 gas pipeline), which supplies 40% of the methane consumed in Europe (17% in France). The futures contract on the Rotterdam market stood at 312 euros per MWh on Friday, approaching the historic peak of 345 euros per MWh reached in March, shortly after the invasion of Ukraine. In one year, its price has increased almost sevenfold, and the surge could continue as winter approaches.

Securing future supplies

Gas, also increased by the cost of CO₂, is not the only cause, especially in France. In normal times, EDF plays a balancing role thanks to its electricity exports to Europe. The ace ! Its nuclear production (280-300 terawatt hours in 2022) is at its lowest due to the shutdown of 32 of its 56 French reactors for various reasons: ordinary maintenance, ten-year inspections, fuel recharging and change of piping for corrosion. The announcement on Thursday of the extension of work on four “slices”, one in Penly (Seine-Maritime) and three in Cattenom (Moselle), increased concern about power cuts this winter and contributed to the rise in prices.

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