How Much Further Can Power in Europe's Biggest Economy Fall?

Updated on
  • Prices seen falling as much as 9 percent this year: survey
  • Old power stations, reactors seen shutting at current prices

After already erasing all gains amassed since 2002, traders are saying German power prices will fall even further before they start to recover.

Electricity for round-the-clock delivery next year in Germany may slide another 9 percent this year, according to the median of 26 traders and analysts surveyed by Bloomberg News. The benchmark has lost 12 percent this year on the European Energy Exchange AG, the worst start of a year since the Leipzig, Germany-based bourse opened in 2002. Two-thirds of respondents expect the contract to recover from current levels by year-end.

Germany’s shift toward an economy based on renewable energy has depressed power prices in Europe’s biggest market as generation from wind and solar cut operating hours at traditional generators burning fossil fuels. Average prices will likely remain near current levels this year, according to the survey. That would be unsustainable for older plants even as oil’s slump to a 12-year low helped reduce fuel costs.

“There is nothing on the horizon that can drive power prices upward unless there are some plant closure announcements.” said Bruno Brunetti, a senior director of electricity at Pira in New York, who has tracked Europe’s energy markets for 20 years. “Coal is being driven by oil and that is bringing down power prices. Gas is also extremely weak. It’s a chase to the bottom.”

European coal for next year has lost 10 percent since the start of the year, according to broker data compiled by Bloomberg. Natural gas for February delivery on the Dutch Title Transfer Facility, Europe’s biggest market, has slipped 13 percent this year, tracking Brent crude’s 25 percent drop.

Nuclear Closures

German power for 2017 could fall as low as 21.45 euros ($23.50) per megawatt-hour this year, with estimates ranging from 17 euros to 23.20 euros, according to the poll. Year-end prices are estimated 6 percent higher at 25 euros per megawatt-hours, while the average price in 2016 was seen at 24 euros, compared with Wednesday’s price of 23.50 euros on EEX. 

Low prices could impact nuclear generation, which Germany has said would halt completely by 2022 in the aftermath of the nuclear disaster at Japan’s Fukushima in 2011. The nation still has eight operating reactors.

With prices at 23 euros a megawatt-hour “nuclear plants will shut early,” Roland Vetter, head of research at CF Partners U.K. LLP said by phone from London on Jan. 14. “It doesn’t make sense to run them until 2020 without a recovery in power prices.”

Coal and lignite plants are also likely to suffer from the slump.

“Current power prices could lead to closures of old coal plants and companies with high costs,” said Omar Ramdani, head of analysis at RheinEnergie Trading GmbH in Cologne. “The remaining plants can keep producing at current price levels given the fall in fuel prices.”