Electricity

Electricity curve prices ended 2012 on a bearish note, but forward contracts have lost more ground in the new year, with few positive economic indicators and continuing oversupply. Uncertainty over the price of emissions has also eroded prices, as lower values in that market have reduced the cost of generation from gas and coal, and electricity values have fallen in response.

However, the extra renewable capacity that came on line in 2012 continues to undermine power prices, particularly as much of this is fed into Europe’s power grids first, squeezing out market-based generation.

Generators are still suffering from poor margins, and cutting capacity wherever they can, mothballing plants and putting new capacity on hold until profit margins are more favourable. A number of new-build projects have been delayed, and decisions to invest have been deferred.

This is causing growing concern across Europe that the flexible generation needed to compensate for intermittent renewable generation is not economic to build. In addition, some older and dirtier plants are being decommissioned, fuelling concerns that there may be further shortages when the economy recovers.

Many EU member states are considering whether artificial mechanisms are needed to ensure security of supply, and calls are growing for a pan-European response or guidelines.

Updated to mid-February 2013