Germany's nuclear phase-out: When will the power price rise begin?

27 January 2017 05:36 Source:ICIS

German wholesale power prices will start increasing from 2020 due to the country’s high-profile nuclear phase-out alongside carbon market reform, according to some market sources.

Others however said it is unclear when, if at all, this would start to happen.

At Wednesday’s close, the far end of German wholesale power market forward curve suggested a slight year-on-year increase will be seen in 2020 and again in 2021, after prices drop to €27.03/MWh for 2019 delivery, according to ICIS assessments.

The 2018 product was prices at €29.925/MWh.

This is the case even though, on the European coal curve, the Cal ‘20 was below the Cal ’19 contract. Coal is typically the main driver of daily movements on the German power curve, with a large chunk of the country’s generation coming from plants that burn that fuel.

Some traders said it was too early to say if the current shape of the power far curve would persist as the Cal ’20 and ’21 prices might not accurately reflect fundamentals considering the volume dealt on these contracts is still low.

Supporting factors

Other market sources said a price increase would indeed be seen from 2020 in delivery. “That’s purely [due to] the closure of nuclear plants plus some carbon,” a trader at a European electricity company said about the Cal ’20 premium over the Cal ‘19, which he expected to persist.

Market modelling by PA Consulting indicates a price increase towards the end of the decade and at the beginning of the 2020s, expert Marcel Munz said. The power price could increase back to where it was around the start of the decade, he said.

Germany has approved the phase-out of nuclear power by the end of 2022. It plans to close one nuclear reactor by the end of this year, another by the end of 2019, three more in 2021 and the remaining three in 2022 – a 11GW capacity reduction in total.

In addition, reform of the European carbon trading system should support carbon values and, by extension, power prices towards the end of the decade. Fossil-fuelled power plants in Europe must hold carbon certificates to cover their emissions.

Further upward pressure will also come from lignite plants going offline, Munz said. Germany has approved a gradual transferral of 2.7GW of lignite-fired capacity into a reserve between 2016 and 2019, and will follow with the plant’s eventual closure to reduce emissions.

Besides this, further thermal plants are likely to close early in the next few years due to dwindling profitability.

Renewables impact

Renewable energy growth will continue pressuring prices downwards, although this trend is expected to slow due to recent subsidy reform. Germany aims to increase solar and onshore wind power capacity each by 2.5GW annually.

For grid stability reasons, offshore wind growth will be temporarily lower in 2021-22, with 500MW to be added annually in this period, according to legislation approved recently.

Wind and solar power feed-in is volatile due to its dependence on weather. Germany’s growing reliance on renewables will increase the risk of occasional price spikes on the short-term market at times of unfavourable weather conditions. “Although there might be a need for conventional capacity for only a limited number of hours [by around 2020], these hours might be costly enough to justify the price for a whole calendar year to increase,” Malte Neuendorff, manager at consultancy KPMG Germany, said.


Nobody can say with certainty when the German power price increase will start, DIW Berlin research institute expert Wolf-Peter Schill said. This is because future prices depend on many factors, especially in light of Germany’s growing interconnectedness with other power markets.

Germany’s climate policy also creates uncertainty. The government has set ambitious 2030 emissions reduction targets and might announce further measures to reduce coal-fired capacity to achieve them.

Current forward prices suggest any increase will be modest. The Cal ‘21 closed on Wednesday at €28.70/MWh, €1.67/MWh above the Cal ’19, but €1.23/MWh below the Cal ’18.

“We expect prices to remain low by historical standards, but to be more volatile,” Moody’s analyst Helen Francis said.

By Laura Raus