European electricity prices rise to records as gas costs jump

Electricity prices surged to records as Russia tightened its grip on European energy markets, deepening a crunch that’s threatening to plunge the continent’s largest economies into recession.Power contracts rose 11% in Germany and 5.5% in France after Russia said it will further curb gas flows to Europe starting on Wednesday. That’s leaving Europe without vital fuel to produce electricity at a time when Electricite de France SA is grappling with the reliability of its nuclear power plants. Less than 50% of the company’s atomic fleet is currently operating.Higher energy prices in Europe could translate into more pain for households, businesses and industry already battered by a surge in living costs caused by the highest inflation levels in decades. Germany, Europe’s biggest economy, has already triggered two stages of its gas emergency plan and could enact the last step if there’s a clear deterioration in the situation. Coal prices rose to a record on Tuesday with Europe using more of the fuel as it tries to save gas to put into storage ahead of winter. Power demand in the region gained last week as a lethal heatwave boosted demand for cooling.“Overall European power demand is up about 3% during the first three weeks of July compared to June, caused partly by the heatwave, which has increased the demand for cooling,” said Fabian Ronningen, an analyst at Rystad Energy. “The increase in demand could not have come at a worse time in Europe, since most of the additional power generation has to come from coal and gas, both in a severely constrained supply situation and very high prices.”German year-ahead power climbed to a record 380 euros ($384.58) a megawatt hour on the European Energy Exchange AG. The equivalent French price jumped to 499.50 euros per megawatt-hour, also an all-time high.The rise in long-dated contracts shows that Europe’s higher energy costs are here to stay. Day-ahead prices in Germany rose 34% to the highest level since March. German power for tomorrow is more than 15 times higher than the five year average for this time of year.Last week France’s power grid operator made an emergency call to secure power supplies from Britain. This highlights the difficulties ahead in keeping the lights on this winter when supplies get tight.Benchmark gas prices advanced to the highest level in more than four months, as Europe braces for a further reduction in Russian supply. Industries, households and businesses could soon feel the impact of shortages as European Union energy ministers agreed on emergency regulation that could force 15% cuts in gas consumption through the winter if Moscow halts gas deliveries.Very high energy prices usually trigger some demand destruction, when energy-intensive industries shut operations because it’s not profitable.“If demand is reduced that would impact prices downwards,” Roenningen said. “But cutting power demand also means reduced services to consumers and industry which can have a wide-ranging impact outside of the energy sector.”As gas prices have jumped, countries like Germany are trying to rely more heavily on alternative cheaper fuels, even if they’re more polluting, to secure energy supplies ahead of winter. The rise in power is pulling up the price of coal, threatening to make Europe’s emergency energy planning more expensive. Coal for delivery to northwest Europe next year jumped as much as 10% to a record $303.95 a ton.