Power prices in Europe reach record highs in August

ANKARA

August was the most expensive month ever for power in Europe on the back of surging gas prices, prompting European policymakers to consider market intervention to safeguard individual consumers and businesses, according to recent research by consultancy Rystad Energy.

Electricity prices in the bloc accelerated further last week and crushed the fresh record set in July in Italy, France, Germany, and the UK, the consultancy’s analyst Fabian Ronningen said.

Data compiled by Rystad showed that the average spot price for August in Italy was €547 ($548.6), making it the first market to ever have a monthly average spot price over €500 ($501.5) per megawatt-hour (MWh). Germany ranked second with an average of €465 ($466.4) per MWh followed by the UK at €438 per MWh.

Germany and the UK also registered the highest price rises last month, with increases of 48% and 53%, respectively, while increases in France and Italy averaged about 20%.

The previous week also set a new record for a single week, with weekly average prices in Italy, France, and the UK all exceeding €600 ($601.8), while the daily average price in France on the spot market reached an astounding €744 ($746.2).

Market intervention

The European Commission has now made it apparent that it intends to intervene in the energy market to imminently reduce growing electricity prices.

Even Germany, which previously opposed any market intervention, blames the market for peak electricity prices. Countries such as France, Spain, Belgium, and Greece also concede with Germany.

Bowing to the demands of prominent EU countries, EU Commission President Ursula von der Leyen announced steps they would take toward the better functioning of the electricity market.

"Skyrocketing electricity prices are now exposing the limitations of our current electricity market design," von der Leyen said on Monday.

She explained that the bloc's electricity pricing system, which bases the final price on the latest and most expensive energy source and does not reflect the lower costs of renewables or nuclear power, was developed for different circumstances.

Therefore, she said the EU is now working on an emergency intervention and a structural reform of the electricity market.

At this point, the EU's intervention in the electricity market is expected to decouple resource prices for electricity generation.

Consequently, this could result in the market differentiation in pricing for renewable energy sources – such as wind and solar – and fossil fuels – such as natural gas or coal.

Thus, payments for renewable resources are forecast to move lower with a fall in electricity prices.

Nonetheless, there could be many gas supply problems in the face of this intervention, given the difficulty in persuading manufacturers to sell below free market prices.