Price explosion on the energy market
“Sheer panic” works on the electricity exchange
08/23/2022, 7:42 p.m
Wholesale prices for electricity and gas are skyrocketing to levels that were unimaginable not long ago. Mirko Schlossarczyk, partner at the energy consulting company Enervis, explains in an interview with ntv.de what is going on, what that means for consumers and how politicians must react.
ntv.de: If you think back a year: could you have imagined the prices we are seeing on the electricity and gas exchanges these days?
Mirko Schlossarczyk: No! On Monday, the day-ahead price for a megawatt hour on the electricity exchange jumped well over 100 euros. That is significantly higher than the absolute price before this crisis. This extreme volatility shows the absolute nervousness that has gripped the market.
Market prices for gas – and to a lesser extent also for electricity – have been rising for some time. But since last week they seem to be going completely crazy, with unprecedented price jumps. What happened?
Ever since the start of the war in Ukraine on February 24 at the latest, there has been concern in Europe that gas could become scarce next winter. In addition, this is fueled again and again by short-term and unpredictable announcements of gas supply disruptions. Now, however, there is increasing fear that there could be a real shortage on the electricity market too, that demand could no longer be met. Several crises are coming together: in France, more than half of the nuclear power plants are currently not on the grid, mainly due to maintenance work and technical defects, but also because of the low water level in the rivers from which they take cooling water. Due to the extreme drought in the entire Alpine region, the availability of hydroelectric power plants is exceptionally low. These problems and crises, including cut gas supplies from Russia, are coming together under a magnifying glass right now. But despite everything, electricity prices of more than 700 euros per megawatt hour can no longer be explained solely with fundamental factors such as the increased gas price. A heated market psychology and the sheer panic of some market participants of not being able to meet delivery obligations are also obviously having an effect.
Do you think this fear is justified?
These extreme risk premiums, which are probably being paid at the moment, do not seem understandable from a fundamental point of view. I think it is unlikely that there will actually be a significant power shortage in Europe. The situation at French nuclear power plants should ease up again in the coming months, as should the supply of hydroelectric power.
Who is driving the price of energy so extremely at the moment? Is there speculation involved or are these companies trying to protect themselves against a feared extreme energy shortage?
It is not really transparent who is acting in detail. It is obvious that a lot of electricity is currently being bought from the European market, especially from France. Some providers are under extreme pressure. The French lack electricity from their nuclear power plants. In order to meet their delivery obligations, they have to stock up – no matter what the cost.
What does all this mean for consumers? When and how will these price increases affect end customers?
On the one hand, these fluctuations on the stock exchanges are only a snapshot. Suppliers usually stock up over long periods of time and use so-called hedging strategies to do so. In addition, the end customer price, especially for electricity, consists largely of surcharges and taxes. This means that these recent increases are unlikely to reach consumers until next year, and not in full. On the other hand: price increases of 2000 percent or more in a year-on-year comparison, as is currently the case on the stock exchange, will also have a severe impact on end customers.
What can and should politics do in this situation?
One thing is absolutely clear: Politicians should at least partially cushion the enormous impact on consumers. This is not an energy policy issue, but first and foremost a social and socio-political issue. The challenge is: how to protect consumers while maintaining the price’s steering effect. In view of the current situation and the coming winter, the top priority should be to save gas. As the gas levy shows, this is a difficult balancing act: First, the government increases the price with the gas levy, which should encourage savings. Then it lowers the VAT and thus significantly reduces the incentive to save again. France is showing how it doesn’t work. There, the end consumer prices for electricity are capped. While suppliers have to buy electricity at record prices, nothing is happening on consumer bills. You are not encouraged to save at all.
Max Borowski spoke to Mirko Schlossarczyk