In particular, electricity cost was affected by the increase in the price of gas and carbon emissions

In the EU, the average monthly wholesale day-ahead prices in May 2024 were higher in most countries than in April, except for France and Sweden.

According to Ember, they amounted to:

  • Italy – €94.9/MWh (+9.4% m/m);
  • France – €27.09/MWh (-4%);
  • Germany – €67.3/MWh (+7.8%);
  • Spain – €30.3/MWh (+ 2.2 times);
  • Sweden – €23.04/MWh (-52.3%).

Electricity prices in Europe, GMK Center

May trends

According to ALeasSoft Energy Forecasting, in May, the Iberian market lost its position as the market with the lowest electricity cost, which it had held for three months in a row, to France.

Last month, solar energy production volumes registered either historical records or records for the month, but wind energy production fell in most countries during this period.

However, prices in major European markets were affected not only by changes in the generation mix and demand levels, but also by higher gas prices and CO2 emissions compared to April. Accordingly, the cost of electricity per day-ahead fluctuated greatly during May. For example, in Germany, it was €0.37/MWh at the beginning of the month, and on May 27 it peaked at €108.3/MWh.

The Italian market registered the highest weekly average of €102.6/MWh from May 27 to June 3.

According to the forecasts of The European Energy Exchange (EEX), the Central European exchange for electricity and related products, the basic settlement price of electricity futures on the German market in July 2024 will be €83.86/MWh, on the French market – €43.38/MWh, on the Spanish market – €73.5/MWh, on the Italian market – €114.5/MWh.

Ukrainian realities

In Ukraine, the weighted average price of electricity on the day-ahead market (DAM), according to Market Operator, increased by 26.6% m/m in May – to 4221.9 UAH/MWh (€97/MWh at the exchange rate of 43.45 UAH/EUR). Demand for the DAM in the period under review increased by 21.01% compared to April, while supply decreased by 7.71%.

The situation in Ukraine’s power system has become significantly more complicated in recent months, as Russia has been deliberately targeting generation facilities.

According to Prime Minister Denys Shmyhal, the country has lost more than 9 GW of generation capacity, and the enemy continues to attack energy facilities. Ukrenergo is now resorting to blackouts for both residential and industrial consumers.

In May, Ukraine also significantly increased its electricity imports from Europe, and the government is working to expand them to 2.2 GW. Currently, the authorized maximum is 1.7 GW.

The National Energy and Utilities Regulatory Commission (NEURC) raised electricity price caps for businesses in June. According to the regulator’s decision, price caps will increase by 20% during evening peak hours and more than double at night.

In addition, the Cabinet of Ministers proposed that blackout schedules should not be applied to companies that import 80% of their electricity consumption and amended the relevant provision at a meeting on May 30. However, this provoked a negative reaction from businesses and industry associations.

European dilemma

In May-June, European steelmakers also returned to the topic of electricity costs, their role in the energy transition and the competitiveness of companies.

In particular, ArcelorMittal called on the German authorities to adopt a clear industrial policy to continue the green transformation of its assets in the country. According to the company, competitive energy prices are a decisive factor for the group’s final investment decision worth €2.5 billion, which is expected to be made no later than mid-2025. For the steel giant, it is not only about cheaper hydrogen in the country, but also about the fact that it is difficult to ensure the economic efficiency of EAF in the long run due to the high price of electricity.

At the same time, the German steel association WV Stahl has called for a reduction in electricity costs for small and medium-sized enterprises. According to the association’s president, Bernhard Osburg, political decisions on competitive electricity prices and the restoration of subsidies are needed to stabilize transmission tariffs. WV Stahl notes that medium-sized companies produce steel exclusively using the energy-intensive electric arc furnace process. In Germany, this process accounts for almost 30% of steel production.

According to Italian trade unions, high electricity prices and a large difference with other European countries are the reasons for the low productivity of the Italian Acciai Speciali Terni. This stainless steel producer is now part of the Arvedi Group.

“The average cost of energy in Italy is €95/MWh, Germany pays €32/MWh, France €24/MWh and Spain €53/MWh. This seriously affects the competitiveness of Arvedi AST, as well as the Italian energy-intensive sectors,» the trade unions noted.

Gas prices

According to the AGSI platform, European gas storage facilities were more than 70% full as of June 1, 2024, which is the second highest level ever recorded at this time of year.

Despite the bloc’s comfortable level of storage capacity, the European gas market remains sensitive to various factors.

According to Reuters, Russian gas exports by pipeline to Europe in May of this year increased by 39% y/y and 7.3% m/m – to 89.5 million cubic meters. Despite the growth of this indicator last month, the European market is not sure that this trend will continue for a long time. In addition, there are fears that supplies may stop this summer, rather than at the end of 2024, when Ukraine intends to stop transit.

For example, last month, Austrian OMV warned that Gazprom could stop supplying gas to Austria due to legal problems with payments to Gazprom Export. The company learned about a foreign court ruling in favor of an unnamed large European energy company that intercepted payments from an Austrian buyer. OMV’s assessment of possible problems is based on the behavior of the Russians in similar situations.

On May 23, TTF futures reached €35.83/MWh, the highest price since December 2023, including this news. On May 24, they dropped to €34.1/MWh, but the figure was still 11% higher than a week earlier.

Unplanned supply disruptions from Norway are increasingly causing a sharp reaction on the European gas market.

For example, on June 3, the price of the European benchmark TTF rose to more than €38/MWh, the highest level this year, due to a failure at one of Norway’s largest gas processing plants, Nyhamna. Later, it fell to €36.8/MWh.

Norway is currently the largest supplier of natural gas to Europe, accounting for 30% of the EU’s supply last year.

Europe is also currently dependent on LNG imports from the United States and Qatar. Gas prices in the United States have fallen by one-third this year due to a warmer winter, disruptions at LNG plants, and higher-than-expected production. Demand prospects were also affected by the growth of solar and wind generation and Biden’s decision to suspend liquefied natural gas export permits in February. In response, companies cut production and prices began to rise.

In May, U.S. LNG imports to Europe declined amid rising demand in Asia due to high temperatures. This fosters competition for cargoes, so European gas prices need to remain higher for the region to attract them.