This winter in Europe has been exceptionally cold, not just in terms of temperature but also in electricity prices. In Germany, electricity prices have soared to over CNY 7 yuan per kilowatt-hour, marking an 18-year high.
The situation is not much better in other European countries. Electricity prices in southern Norway have increased by 20 times, while Italy, France, and Spain have also seen record-high prices. Even Denmark, a major energy producer, is facing electricity prices of over CNY 11 yuan per kilowatt-hour. The entire continent is grappling with the issue of electricity prices.
Experts analyze that the main reason is the tight supply of renewable energy, particularly the decline in wind and solar power generation. In Europe, which is usually warm throughout the year, temperatures dropped sharply in December, driving up electricity demand. At the same time, reduced wind speeds led to a sharp decline in wind power generation, and solar power generation was also greatly affected.
An analyst from Italy pointed out that due to insufficient renewable energy, electricity production had to rely on expensive natural gas to fill the gap. According to a report by Confindustria, the Italian industrial association, eurozone natural gas prices are expected to reach 47 euros per megawatt-hour in December, undoubtedly pushing up electricity prices. In this context of supply and demand imbalance, the electricity market is under tremendous pressure, leading to crazy price spikes.
Double Impact of Climate Change
In countries like Germany, climatic factors have made the phenomenon of soaring electricity prices even more pronounced. The German weather term “Dunkelflaute” describes cloudy and windless weather conditions. In such weather, solar power generation drops sharply, while low temperatures increase electricity demand, creating a nearly perfect “disaster combination” for rising electricity prices. Over the past few years, Germany has gradually increased the proportion of renewable energy, making the market more dependent on traditional fossil fuels in the face of extreme weather, and significantly increasing the possibility of soaring electricity prices.
In addition, France’s spot electricity price hit a 21-month high of 173.13 euros on December 11th. The reasons are also closely related to the sudden drop in temperature, strong export demand, and insufficient wind energy. With increasing electricity demand across the country, France has had to start multiple oil-fired power plants for generation, further pushing up electricity prices.
Norway’s Withdrawal
Against the backdrop of soaring electricity prices, Norway, a major hydropower producer, has chosen to withdraw. On December 12th, the Norwegian government discussed whether to abolish the electricity interconnection with neighboring Denmark and even considered renegotiating electricity connections with the UK and Germany. This policy consideration is directly related to Norway’s energy interests and market stability, especially in the face of such volatile electricity price markets.
Since its energy market reform in 1991, Norway has been regarded as a model for the EU’s internal energy market. However, the sharp fluctuations in electricity prices in recent winters have begun to raise doubts among the government and the public about the current system. Norway faces an urgent need to ensure low domestic electricity prices. With soaring prices, Norway’s electricity policy may undergo a major transformation in the near future to better protect its market stability.
