The risk of new heat waves in July is keeping electricity prices high, after record temperatures in June pushed prices to their highest level since the 2022 energy crisis, according to Bloomberg, as reported by Agerpres.
Energy prices surged as Europe experienced record-breaking temperatures, boosting demand for air conditioning while simultaneously limiting supply. This episode has highlighted how extreme heat, linked to climate change, can disrupt electricity markets in several ways—a phenomenon that can be observed around the world.
Forecasts indicate a high risk of new heat waves in the United Kingdom, Spain, Germany, and France this month. The next heatwave, while not expected to reach the extreme levels seen in June, could bring a heatwave to the UK as early as this weekend, the British Meteorological Office (Met Office) has warned.
Matthew Dros, a meteorologist at Vaisala, estimates that temperatures across much of Europe will be 2°C to 8°C above normal. By mid-month, France could once again become the epicenter of the heatwave, as high pressure, unusually warm seas, and soil dried out by previous heatwaves interact with one another, said Matthew Dros.
In Germany, energy futures contracts for delivery next month rose 2.2% on Thursday to 103.58 euros per megawatt-hour on the Epex exchange. This is slightly below the June peak and close to the highest level since the beginning of the year.
The June heat wave reduced the supply of electricity by cutting wind power generation and limiting output at nuclear power plants in France and Switzerland due to the warming of cooling water. In addition, demand for electricity rose due to the use of air conditioners.
Last month, average next-day electricity prices in Germany and the United Kingdom rose to 109.50 euros and 115.76 euros per megawatt-hour, respectively. This is the highest level recorded since June 2022, according to data from Epex Spot SE. In France, prices reached their highest level since 2023.
“A new heat wave could put similar pressure on the energy system, with weak wind power generation and constraints on nuclear power plants in France,” said Nathalie Gerl, an analyst at the London Stock Exchange Group.
Markets are also watching for a repeat of the sharp price spikes seen during the June heat wave. During that period, prices for certain hourly intervals reached as high as 665.82 euros per megawatt-hour in Germany and 313.36 euros in France, according to Epex Spot SE.
Nathalie Gerl noted that, although the overall supply situation was not exceptionally difficult, power producers repeatedly submitted evening bids well above estimated marginal costs. The reason for this phenomenon is that producers also had to factor in the risk that generating units might not start up on time or might lose efficiency under extreme heat conditions, which increases the risk that producers will be forced to purchase energy from the market at short notice.
“The high evening bids recorded during the last heat wave could reappear under similar conditions,” said Nathalie Gerl.
Source – AGERPRES
