Europe | Stabilizing skies: Wholesale electricity prices find calm after the storm

Summary

The reduction in electricity prices in Europe is attributed to the reversal of supply shocks and a decrease in demand. The definitive impact of renewable energies will be delayed until advances in storage systems are achieved, allowing for more effective management of demand peaks.

Key points

• Key points:
• Wholesale electricity prices have stabilized in Europe, at average levels ranging between 40 and 70 EUR/MWh in 2024, far from the high and volatile prices of 2023 and, above all, 2022. In February, Spain recorded the EU's lowest price at 40 EUR/MWh, the lowest in the past three years.
• This decline in electricity prices in Europe is underpinned by market fundamentals: reduced gas prices, tempered demand, and increased production from renewable and hydroelectric sources.
• In Spain, the situation is similar to that of Europe. Even though the Spanish adoption of renewable electricity exceeds the European average, a significant link with gas prices persists, with gas often determining the marginal cost of electricity.
• This observation, however, does not undermine the benefits of a greener electricity mix. Spain is approaching a pivotal moment where renewable sources are poised to dominate the energy mix for the majority of the time, which along with storage improvements, could significantly cut the average costs of electricity.
• In the coming years, with gas prices stabilizing in Europe as gas futures point out, we expect wholesale electricity prices to remain close to 2024 levels, with gradual improvements due to renewables and temporary spikes due to geopolitical tensions.

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