Europe

European power prices have now fallen so much, as October comes to a close, that they are comparable to the level seen last year for the majority of European countries.

The UK has seen the largest decline compared to last year, with a massive 35.3% drop on October last year, averaging €137 ($135) per megawatt-hour (MWh) for the month.

This is also the lowest monthly price for the country so far in 2022.

Italy also saw a decline compared to October last year, although by a more modest 2.5%.

The country has benefitted from the sizeable decline in gas prices in October, due to its large dependence on natural gas for power generation.

Italy did, however, remain the highest-priced market of the largest five power-producing countries, as it has done in every month so far this year.

On the contrary, France and Germany both saw a modest increase compared to last year, partly caused by both having much lower prices than the UK and Italy in 2021, which is no longer the case.

France also saw a yearly low in October, while in Germany’s case it was the second-lowest price month so far this year, only behind February, a month with very strong renewables generation that brought prices down.

The current sustained lower prices may be temporary as much depends on the weather and geopolitics – from sanctions against Russia to strikes on energy infrastructure in Ukraine – prices could soar and spike as soon as temperatures drop, or tensions escalate.

Also on a weekly level, most markets saw a decline last week, caused by a further decline in gas prices and very mild weather for the time of the year.

Prices fell in the range of 30% week-on-week in Germany, France and Italy, and all these countries have seen more than an 80% reduction in weekly average prices since the peak in late August.

The mild weather is expected to continue, although temperatures could creep closer to the normal level for the year over the coming week, increasing the risk of more high-price hours.

On the supply side, Continental Europe and UK wind supply are expected to pick up, which could bring prices further down. Overall, continental power prices are expected to stay in the same range as last week, with the risk of further declining, depending on whether we see a further decline in European gas prices.

Last week was another very turbulent week in the European gas market, with the Dutch Title Transfer Facility (TTF) gas spot contract turning negative for a short period on 24 October.

The price did, however, quickly recover and closed at €31 per MWh the same day, reflecting some of the extreme volatility still present in the gas market.

For the week as a whole, the spot contract saw the biggest decline, reduced by a massive 33% week-on-week, but almost all this decline occurred on 24 October, and the contract traded fairly flat for the rest of the week, closing at €33.8 on 28 October, and was trading up on 31 October.

As the below figure shows, there is still a massive gap between the spot contracts and the futures contracts, but now also the front-month contract is trading at a significant discount to the longer-out contracts. The front-month contract saw a total 4.7% decline last week, closing at €109.5 per MWh, while the front-year saw a slight increase by 0.4%, closing the week at €142.6 per MWh. Both these contracts opened strongly down on Monday. The spread between the different contracts is related to the current mismatch between supply and demand in Europe at the moment, and the expectations longer term.

Gas storage is close to full in Europe, liquefied natural gas (LNG) imports to Europe have been very strong and gas demand has been low, resulting in an oversupply of gas in the short term. Market participants do, however, know that this will not be the case long term, as extreme amounts of Russian gas volumes need to be replaced mostly by LNG, which needs to be sourced from a tight global market. Gas-for-power demand is also expected to increase going forward, as temperatures drop further.

Polish authorities announced late last week that US supplier Westinghouse has been selected to build the country’s first nuclear power plant. Polish Prime Minister Mateusz Morawiecki said that “a strong Poland-US alliance guarantees the success” of the countries’ joint ventures. The agreement currently includes three reactors in one plant, planned for somewhere along the Baltic Sea coast, with a specific location not yet selected.

Westinghouse was competing with French player EdF and South Korea’s Korea Hydro & Nuclear Power.

Poland targets a total of 6 to 9 gigawatts (GW) of nuclear power installed over the next two decades, with the first units targeted to be operational by 2033. Poland considers nuclear to be a key part of its energy transition strategy, among other sources, to reduce the large share of coal in the current power mix.

Fabian Rønningen, senior analyst

North America

October’s final week had seen decreased power prices in the US, with the national weekly average day-ahead power price dropping from $54.16 per MWh to $48.47. All observed US markets had lowered power prices week-on-week, with both the California and PJM power markets having more than a 15% reduction in day-ahead power prices.

Power demand in the US was lower last week, reaching only 67 terawatt-hours (TWh) compared to over 70 TWh the previous weeks. Henry Hub natural gas prices have also been quite low, dipping under $5 per million British thermal units (MMBtu) on 21 and 24 October for the first time since March 2022. Low Henry Hub spot prices combined with lower demand signals a continued decrease in power prices.

Despite current price levels, Henry Hub futures contracts for the winter months are trading at above $6 per MMBtu with the expectation of high heating demand.

A nuclear power comeback was garnering strength last week across North America. Announcements were made by both Pacificorp and Tennessee Valley Authority on the siting for new nuclear power plants. New nuclear power plants could aid in decarbonizing the power grid if seen through to completion.