Europe’s Green Power Revolution Softens Iran Energy Price Shock

Europe’s power market is facing its first serious geopolitical stress test since the 2022 energy crisis — and, so far, it’s holding up.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Europe’s power market is facing its first serious geopolitical stress test since the 2022 energy crisis — and, so far, it’s holding up.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.German and French prices have been much more resilient than natural gas to the turmoil caused by the war in the Middle East, declining last week despite a surge in oil. High energy prices four years ago caused a deep inflationary shock that lasted years, but this time the continued investment in solar panels and wind turbines is helping to blunt any major price shocks. Contracts remain a fraction of the levels seen after Russia cut pipeline flows in the last crisis, when power costs spiraled and forced governments into emergency interventions. This time, the system looks better prepared.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.“The electricity market is significantly more diversified than the oil market and can therefore better withstand a supply constraint of oil or gas,” said Morgane Trieu Cuot, Alpiq Holding AG’s interim trading head.Higher oil and gas prices are adding to inflationary pressure, with the EU warning its measure could exceed 3% this year if the war in the Middle East drags on. Electricity prices, however, remain far lower than they were four years ago, a buffer that could help limit the need for further rate hikes.At the height of the last energy crisis, cuts to Russian pipeline supplies culminated in the Nord Stream explosions in September 2022 and sent gas prices to record levels just as peak demand was approaching. Now, solar output is beginning its seasonal ramp-up after the winter lull, while a boom in new installations is steadily increasing its share of the grid.“What we’re seeing now is the energy transition in motion,” said Jorge Martinez, chief growth officer at renewable energy producer Nadara. “Even as gas prices jump in response to geopolitical tensions, Europe’s growing solar and renewable capacity is helping cushion the blow.” Wind generation is also rebounding after a long period of below-normal output. In addition, France’s nuclear fleet — a key pillar of Europe’s power market — is on a much stronger footing than during the last energy crisis, adding more supply to the grid.Renewables not only lower average electricity prices — they also damp price spikes, Rabobank said. Without renewables — and the seasonal drop in demand — European electricity prices would already be about one-third higher, the bank said in a report. Energy costs were already a key worry for policymakers, with power prices in the region far higher than in the US and China. European power contracts were more expensive than current levels as recently as January, when higher carbon prices and the colder-than-normal winter drove up demand. But on the back of the recent gains, EU leaders are meeting on Thursday to discuss the market and how to shield its industry from the overall high prices.

European Commission President Ursula von der Leyen is due to outline options to lower power costs in a letter to the heads of government before their gathering. The measures the EU is considering to cut spiking power prices include allowing lower grid fees and energy taxes, as well as a targeted adjustment of emissions permits supply in the bloc’s carbon market, Bloomberg News reported this month. They also include a possible cap on gas prices. Referring to the turmoil in fossil fuel markets, RWE AG Chief Executive Officer Markus Krebber said renewables offer stability because they are not tied to imported fuels.“If we look at different countries in the world, then we enjoy one benefit: renewables are not affected,” he told journalists last week after the release of the company’s earnings report.Germany’s solar output is forecast to rise about 25% in April compared with a year earlier, according to BloombergNEF. Wind generation is projected to jump 70% year-on-year, following one of the weakest periods in years. The renewable surge is arriving just as heating demand begins to ease across Europe. March power demand is expected to be about 10% lower than in February, according to BloombergNEF.The growing role of green electricity is also reshaping how Europe’s power markets respond to shocks. Solar generation is increasingly setting prices during daylight hours.When low-cost renewable electricity floods the grid as demand falls, wholesale prices can drop sharply — sometimes below zero.“Since mid-February, we’ve frequently seen low or even negative prices during Germany’s peak solar hours — something we’d normally expect only from April,” said Nathalie Gerl, lead power analyst at the London Stock Exchange Group. That dynamic leaves gas plants operating mainly during peak evening hours.France and Spain have also recorded negative hourly prices since the conflict began. Still, renewables and softer seasonal demand have not insulated markets completely. Evening prices — when solar output fades and demand remains relatively high — have spiked to around three times their usual levels in several countries. In the Netherlands, evening prices climbed above €400 per megawatt-hour earlier this month, with Germany seeing similar surges.The latest crisis is likely to reshape Europe’s energy debate once again, Krebber said. “The signal to invest in electrification, to get rid of fossil import dependency, is now stronger” than before the war started, he said.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.