Little hope for German power price recovery before decade’s end

Laura Raus


There is no fundamental reason for German wholesale electricity prices to climb before the end of this decade, according to a consensus reached by analysts and traders.

And it is not clear whether planned policy levers outside of the nuclear phase-out, which is due to be complete by 2022, will precipitate any increase in prices, market sources agree.

“All in all, we expect a stabilisation of German power prices after the nuclear phase-out if there is no significant change in terms of the economic situation in Europe or regulatory interventions,” said Norbert Schwieters, global energy leader at financial services giant PwC.

While ratings agency Moody’s expects German wholesale power prices to be relatively stable at least until 2020.

The news will make grim reading for large companies struggling to adapt to the new German power landscape, carved out primarily by the uptake of renewable energy which has to a large extent priced fossil-fuel-fired plants, around which the mega-utilites business models were built, out of the wholesale market.


Jens Buechner, managing director of E-Bridge Consulting, said a price increase would materialise after the nuclear phase-out on the back of the reduction in baseload capacity.

Some experts and traders said the trend may turn upwards at the end of this decade because the nuclear phase-out will take place gradually over several years to 2022.

Only political decisions could see the market climb earlier, said one trader.

In the near term, prices may even fall a little further to new record lows, say some traders. However, they do not expect any further sharp losses.

“My feeling is that prices are already at or near the bottom, they are pretty much as low as they can sustainably go, said Paolo Coghe, senior European power, coal and carbon analyst at the financial services company Societe Generale. “Utilities have been bearing the difficult situation for so long.”

He added a solution will likely be engineered by the German government.

Upside risk

Two political drivers, which could possibly lift prices in the next few years, are planned European carbon market reform and German ministry of economics’ plan to oblige coal-fired power plants that are 21 years or older to buy more carbon credits to cover emissions emitted above a certain threshold from 2017 (see EDEM 20 March 2015).

However, experts and traders are not confident that these measures can lift German power prices significantly, pointing to uncertainty regarding the final form of the measures and future renewable energy capacity.

The shift towards renewables and resulting lower demand for emissions certificates is one reason for doubt over the breadth of influence that European carbon market reform may have over forward German power prices.

Earlier efforts to reduce ETS allowance oversupply have not yielded desired results, experts point out.

“Carbon prices are expected to rise further, but currently have a limited impact on overall German power prices,” said Schwieters.


Experts and traders are also cautious regarding the impact of plans to make German coal-fired power plants buy more carbon credits, even though, according to utility RWE, this would lift German wholesale power prices at least €5/MWh.

“This would be a substantial price increase”, Buechner said. “But it [the planned measure] will have an effect, either through fewer operating hours, higher carbon expenses or plant closures,” he added.

“However, prices would still remain weak and it remains to be seen if this measure could increase them above the current spot level.”

According to Schwieters, the emissions reduction of 22m tonnes that the government hopes to achieve with the planned measure “would result in a limited use of some power plants, which could lead to a stabilisation in power prices”.

Moody’s said it has not changed its estimated price range of €30-35/MWh for German prices for this decade despite the ministry’s plans regarding coal-fired power plants. Without the planned regulations, it would expect prices to stay more towards the lower end of this range.

“Small additions to generation capacity suggest ongoing pressure on power prices through to 2020, due to the commissioning of new conventional and renewable capacity, despite nuclear and thermal retirements. We expect this will maintain wholesale electricity prices in a range between €30-35/MWh,” the agency said in a statement.

“Downward pressure on our price range could come from a further slide in commodity prices if not offset by a weaker euro, higher-than expected renewable growth or the implementation of capacity markets.

A significant tightening of the carbon market could cause our view on the price range to move upwards.” Laura Raus


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