In France, a good part of the nuclear power plants is being maintained, Germany is shutting down its last nuclear reactors. If there is also an embargo on Russian gas, extreme electricity prices and, in the worst case, shortages are a threat in Switzerland next winter.
Nuclear power is fed into the grid here. In France, the nuclear power plants in 2022 and 2023 will supply significantly less electricity than the long-term average.
There has never been anything like this on the European electricity markets. For last Monday morning from 8 a.m. to 9 a.m., French electricity was trading on the stock exchange for almost 3000 euros per megawatt hour (MWh) – a whopping 50 times as much as in normal times. The French grid operator had to announce the “Orange” level, which indicates a tense situation on the electricity market. The French were asked to reduce their electricity consumption between 7 a.m. and 10 a.m. To a certain extent, the stress also spread to neighboring Switzerland, where the spot price climbed to 438 euros in the morning hours.
France’s nuclear power supplies less
Certainly, the cold weather in particular contributed to the extreme situation. In France, for example, electric heaters are widespread, which leads to high peaks in demand. But the record price is just an outlier in a price boom that has been going on in Europe since last autumn. None of this is harmless: the electricity-intensive industries lose competitiveness compared to the competition in other parts of the world if the electricity prices are 100, 200 or even more euros per MWh.
The big question is how durable this price surge is. The surprisingly strong recovery after the Corona crisis initially contributed to the increase last autumn, which led to a sharp increase in demand for electricity. This demand met a tight supply in the winter. Numerous nuclear power plants were being overhauled – in Switzerland, the Leibstadt nuclear power plant was out of operation for a month longer than planned.
There was a renewed price increase on the electricity market after Russia’s attack on Ukraine. The main driver was now the feared bottleneck in natural gas. A year ago, natural gas cost EUR 17 per MWh; it is now over EUR 100. At the beginning of March, the gas price temporarily climbed to over 200 euros.
The development of gas prices is particularly important for the electricity industry. The wholesale price for electricity reflects the price of the last unit of electricity that is brought to market. These are often gas-fired power plants that can be switched on flexibly to compensate for fluctuations in demand. So when gas prices rise, this also drives up electricity prices.
Could this past winter have been a foretaste of what’s in store for us in the 2022/23 transition? The Federal Electricity Commission Elcom, which monitors the security of supply in Switzerland, writes on request that the briefly tense situation in France on Monday illustrates the fragility of the system when a significant part of the nuclear power plants are not connected to the grid and the temperatures are low. Whether neighboring countries such as Germany or Italy could export electricity to France and possibly also to Switzerland would then depend on the availability of renewable energies in Germany, but also on the production capacity of coal and gas-fired power plants.
The reasons for the turbulence will not disappear for the time being, which is why the situation on the electricity market is likely to remain tense next winter. First, more and more French nuclear power plants have corroded pipes that need to be replaced or appropriate investigations made. Electricité de France has therefore had to adjust the production prospects for its nuclear power plants downwards several times in recent weeks: in 2022 it will be a good 300 terawatt hours (TWh), in 2023 only slightly more. That is a good quarter less than the long-term average. For comparison: the whole of Switzerland consumes almost 60 TWh of electricity a year.
Shed loads voluntarily
Secondly, Germany will probably shut down its last three nuclear power plants by the end of the year. These still produce around half as much electricity as Switzerland consumes in a year. Thirdly, the Ukraine war continues to cause great uncertainty. If Europe imposes an embargo or Russia imposes a delivery freeze, additional price capers can be expected.
However, Elcom does not want to let itself get caught up in the branches: It is uncertain whether and to what extent an additional gas supply stop from Russia will lead to bottlenecks, she says. She points out that systemically important gas-fired power plants in Germany could be prioritized when it comes to the consumption of natural gas.
However, a look at the futures markets for electricity shows that the fears are not exaggerated. Anyone who wants to buy electricity for the fourth quarter of 2022 or the first quarter of 2023 today has to pay around 360 euros per MWh for France and a high 300 euros for Switzerland. These are still enormous prices that will burden industry and, with a delay, households as well.
If the electricity market were to function smoothly across national borders, electricity would actually have to flow from the cheap countries to the expensive ones. The prices would adjust. However, the capacities of the cross-border lines do not allow any large exchange. There is also a specific problem in Germany: if there is a lot of wind in the north, only part of the electricity produced can be brought south, where the major consumers are, due to the lack of transmission lines. The imbalances in the German network can reduce Germany’s ability to export.
In any case, Switzerland should take the tense situation very seriously, as it imports electricity from neighboring countries in winter – especially from France. Energy Minister Sommaruga has therefore announced a reservoir reserve for next winter. The operators would only turbine the stored water when instructed to do so by the authorities. However, this can only be a patch, since it does not create a single additional kilowatt hour.
The electricity industry is also of the opinion that a second “line of defense” is needed quickly in order to avoid forced rationing of all large consumers in an emergency. One would therefore look for large consumers who would be willing to temporarily shut down a production line in the event of a shortage, for example. This would be done via an auction, which would give those who would demand the least compensation for a shutdown a chance. Although this possibility is Draft for a new electricity supply law contain. But the question is whether this variant shouldn’t be ready for next winter. In any case, the “orange” warning level in France was a shot across the bow.