European Energy Market Trends: Prices Rise Amid Demand and Fossil Fuel Pressures
In the third week of December, the majority of European electricity markets experienced a slight increase in prices compared to the previous week, with many surpassing an average of 85 euros per megawatt-hour. This upward trend was fueled by increased demand due to colder temperatures and rising costs of gas and CO2 allowances, occurring amidst higher wind energy production and a decline in solar generation. The Brent oil futures reached their lowest close since February 2021, while CO2 futures soared to levels not seen since October 2024, signaling significant shifts in energy costs and market sentiment.
Solar photovoltaic production decreased across most major European markets during the week of December 15, with Italy experiencing the largest decline at 41%. French and Spanish markets saw reductions of 26% and 19%, respectively, while Portugal experienced a minimal drop of 6.7%. Conversely, Germany was an exception, maintaining a rising trend with a 30% increase in solar output for the third consecutive week. Forecasts predict increased solar production in Spain and Italy for the week of December 22, contrasting with a decrease in Germany.
Wind energy production increased in most markets during the same period, notably Italy, with a 132% surge reversing previous declines. French and Spanish markets also saw growth, while Portugal experienced a slight increase. Germany was again an outlier, posting a 12% drop after a period of gains. Future outlooks suggest wind output will continue to rise in France, Italy, and Germany, while decreasing in Portugal and remaining stable in Spain.
Electricity demand responded positively to colder weather, increasing in most markets during the week of December 15. Notably, the United Kingdom and Portugal recorded the highest rises of 4.9% and 7%, respectively. Germany was an exception with a 3.1% decline. Temperatures dropped significantly in Germany and France, while Italy and Britain saw slight increases. Demand projections for the following week indicate a decrease across most markets, influenced by expected warmer temperatures and lower renewable generation.
European electricity prices reflected these dynamics, with most markets seeing price hikes. The Nord Pool market of Nordic countries was the only exception, with a notable 32% drop. Italian markets experienced the highest weekly average at 116.90 euros per megawatt-hour, while the Nord Pool averaged just below 40 euros per megawatt-hour. Daily prices reached above 100 euros per megawatt-hour in several markets, with Italy peaking at over 121 euros per megawatt-hour on December 16. Increased natural gas and CO2 prices, alongside demand rises, drove market prices higher, although wind decreases in Germany also contributed to upward pressure.
Oil futures saw fluctuations within the week, initially declining due to geopolitical and economic concerns but rebounding later in response to tensions involving Russia, the United States, and Ukraine. Natural gas futures followed a similar pattern, influenced by Norwegian and liquefied natural gas supplies, with prices recovering toward the end of the week amid forecasts of colder weather and lower wind generation. CO2 allowance futures remained elevated, exceeding 86 euros per ton, driven by regulatory markets and supply-demand balances, reaching levels unseen since early October 2024.
Looking ahead, market analysts from AleaSoft forecast a decrease in prices for the following week, driven by lower demand and increased renewable energy output. They also highlight the ongoing evolution of energy regulation, power purchase agreement markets, and the importance of storage and decarbonization strategies in shaping Europe's energy future. The upcoming annual webinar will explore these trends and the shifts in energy markets after 2026, emphasizing the role of electrification and demand-side flexibility in reaching decarbonization goals.