German Power, Carbon Rise to Record on Soaring Gas Prices

(Bloomberg) -- European power and carbon prices surged to a record, driven by the soaring costs of other energy commodities.

Global energy demand is picking up after the pandemic and a supply crunch in the gas market is boosting the cost of power generation. Hot weather and low wind speeds are curbing renewable power production, while the price of coal -- the dirties of fossil fuels -- has also surged more than 70% in Europe this year.

The rising costs are a pain for consumers and businesses recovering from the pandemic. They also come in the summer, when demand is usually low, setting the stage for a difficult winter. Utilities across Europe are hiking prices at the same time as everything from food to transport costs are also rising, a headache for politicians. 

“As the current strength in wholesale prices increasingly feeds through to retail tariffs in coming months, there’s likely to be growing focus on the role of governments in mitigating the impacts of the rises in both the short and medium term,” said Glenn Rickson, head of European power analysis at S&P Global Platts in London. 

Germany Flirts With Power Crunch in Nuclear and Coal Exit

Next-year power in Germany, the regional benchmark, rose 1.2% on Monday to as high as 91 euros per megawatt-hour on European Energy Exchange AG. Gas prices have soared more than 170% this year, while carbon futures have climbed to 63 euros a metric ton, an all-time high.

Germany is leading the transition to a green economy based on solar and wind. That means the steady supplies from plants burning fossil fuels that Europe’s biggest power market has got used to are on their way out. As much as 9,000 megawatts of capacity, the equivalent of about 9 nuclear reactors, will be decommissioned by 2023, the bank said Thursday in an note. 

The surging bills could also increase the pressure on the next German government to review taxes and subsidies, according to Rickson. 

European short-term power markets are also soaring on high fuel cost and analysts including those at Bank of America Corp. don’t see the rally ending anytime soon. 

U.K. power for Monday rose to a record 219.46 pounds per megawatt-hours on N2EX exchange. Meanwhile German power for Monday rose to highest level since October 2008 at 127.82 euros. 

(Update with record next-day U.K. power price in 9th paragraph)

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