ELKRISEN
European electricity prices are surging, reaching levels not seen since the 2022 energy crisis, and analysts warn the worst may be yet to reach. A combination of frigid temperatures and low wind power generation is driving the increases, creating what one expert calls “a perfect storm.”
The current price spike is largely attributed to a severe cold snap across Northern Europe coinciding with diminished wind power output. This situation is particularly impacting southern Sweden, where electricity prices have seen significant peaks.
According to Mind Energy, January may become the most expensive month for electricity since 2022. The firm attributes this to the sustained cold weather and forecasts continued low wind conditions for the remainder of the month.
“I wouldn’t be surprised if we see Swedish electricity areas experience the highest average spot prices since 2022 in January,” said Lasse Kamp Simonsen, Head of Structured Products at Mind Energy, to Tidningen Näringslivet.
The new Aurora Line, a power cable connecting northern Sweden and northern Finland, is likewise playing a role. Whereas intended to improve system stability in the long term, It’s currently facilitating the export of cheaper Swedish hydropower to Finland, where prices are higher.
“At the same time, we see that Aurora Line can reduce volatility in the electricity system in the long run, so we view it as positive ” Kamp Simonsen told TN.
Currently, yet, the cable primarily benefits electricity companies that export power, as well as the state, which earns revenue from Vattenfall, taxes, VAT on electricity bills, and transmission fees. This dynamic is less favorable for households and businesses consuming electricity.
As of February 10, the average spot price across Sweden was approximately 192 euros per megawatt-hour, equivalent to roughly 2 kronor per kilowatt-hour for the raw power. Additional costs, including taxes, VAT, and grid fees, are then added to the final bill.
Kamp Simonsen does not foresee any immediate relief for consumers. “The high prices have persisted for some time, and that’s because the high-pressure system that has been over northern Scandinavia has lasted longer than initially expected,” he explained to Tidningen Näringslivet.
The cold weather is increasing electricity consumption and putting significant pressure on Scandinavian water reservoirs, which have rapidly shifted from a substantial surplus to the largest deficit in nearly two years. Mind Energy suggests this could lead to very high costs for Nordic consumers in the near term.
“What we have is the perfect storm happening now,” he explained.
Wind power generation is currently extremely low, delivering just over 1% of installed capacity in northern Sweden and Finland. Solar power offers limited contribution, as daylight hours are short during peak demand periods.
To meet demand, fossil fuel-based power from Poland and Germany is being imported, alongside maximum output from hydropower and nuclear plants where available.
European natural gas storage levels are also under pressure, currently filled to 44%, 11 percentage points lower than the same period last year. This adds to concerns about supply and potential price increases.
The weather forecast continues to predict cold and windless conditions for the coming weekend. “The recent period has been characterized by a significant ‘dunkelflaute’ [dark lull – a period of low wind and solar output], and it looks set to continue for a while,” Kamp Simonsen said.
He advises energy-intensive companies to consider hedging strategies to mitigate risk in the current market. “It is definitely a tool that is much more significant today than it was 5-10 years ago. You need to be aware of the risks of the current market,” he stated.
