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Plummeting EU power prices may not recover until 2025

Image: Getty.

Image: Getty.

Power prices across Europe – which have on average fallen between 30% and 40% - may not fully recover until 2025.

This is under a worst-case scenario modelled by Aurora Energy Research, with a mild COVID-19 scenario seeing power prices recovering by 2022.

Aurora modelled four scenarios for economic recovery across seven EU countries, including the UK, Italy, France, Germany, Spain, the Netherlands and Poland.

The scenarios – mild recession, severe recession, and two depression scenarios – have been investigated to cover the economic spectrum that might arise due to COVID-19. Factors taken into consideration in these scenarios include the duration of lockdowns, demand, supply, commodity prices and investment and financing.

In Great Britain specifically, power prices fell by 21% in the week commencing 23 March – the day lockdown was announced - in comparison to the previous week.

In each of the four scenarios, GB demand is lower due to both the lockdown and subsequent recession/depression, the severity of which dictates how long it takes demand to recover.

Markets with a large share of gas are expected to see a more significant impact from the recent fall in commodity prices. However, in GB the carbon price support represents a large portion of the variable costs of gas, mitigating the market price impact from other commodity price declines, Aurora said.

Renewable energy projects may be hardest hit, according to the research firm. Whilst subsidized projects will see revenues partly or full protected by the government despite the fall in market prices, the drop in expected revenues will impact existing renewable schemes and possibly delay new schemes.

Renewable projects that are being developed on a merchant basis, conversely, are likely to see more severe and longer lasting impacts, Aurora outlined, including large portions of GB’s pipeline. The firm estimated that around 34GW of renewable developments could be at risk across the seven countries featured in the report.

These projects could see their revenues fall by 20-50% depending on the severity of COVID-19.

The fall in demand could also create challenges for power system operators across Europe in balancing the grid as the proportion of renewables will be higher than usual. Already in the UK, solar has broken a generation record and surging renewables caused a significant drop in power prices earlier this month.

And in Q1 2020, Britain reached a major milestone as renewables became its main power source for the first time ever, according to data from EnAppSys.

National Grid ESO has, however, stressed that whilst the current situation is presenting new challenges, it stands ready to meet them.

Felix Chow-Kambitsch, head of commissioned projects- Western Europe at Aurora Energy Research, said: “The effect of Coronavirus has rippled through European energy markets – significantly reducing demand and prices of gas and electricity.

“European power utilities are likely to experience a significant fall in revenues in 2020, with merchant-exposed renewables schemes significantly affected.”

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