Europe’s Energy Crisis Worsens as Heat Waves Increase Demand

EOn Thursday, uropean energy prices reached new records as the heat wave slowed down energy supply and wildfires broke out across France.

The gains reflect a tight market for natural gas—used to fuel power plants—as Russia cuts supplies just as Europe works to replenish stockpiles for winter. The squeeze has been aggravated by a drop in output from nuclear reactors, low wind, and hydro generation. This raises the possibility of government intervention to decrease demand.

“If Russia cuts off the gas and there might not be enough gas for the whole demand, then there would be rationing,” Annegret Groebel, president of the Council of European Energy Regulators, said in a Bloomberg Television interview. Blackouts “can be avoided, but of course it requires a lot of preparatory work that we are currently doing.”

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The benchmark German power rose 6.6% to record 455 Euros per megawatt-hour via the European Energy Exchange AG. French contracts rose as high as 7.8% to reach 622 euro per megawatt-hour. That’s about $1,100 for the equivalent energy of a barrel of oil.

Heat waves this summer have intensified demand while adding to supply disruptions, with key waterways—which are used to generate hydropower, cool nuclear plants and ship energy commodities—drying up.

France’s nuclear fleet, which includes more than half its reactors, is currently offline due to maintenance. This is a very serious situation. Normally, the country would export power. But this year, it has been a net importer. This means that neighboring countries have to consume more gas in order to continue the lights. The nation has seen wildfires erupted, prompting President Emmanuel Macron’s decision to enlist the help of 10,000 French firefighters in fighting the blazes.

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“Historically-low nuclear power output and low hydro reservoirs across Europe are leaving a shortfall in supply that can only be met with dispatchable sources like coal and gas,” said Patricio Alvarez, an analyst at Bloomberg Intelligence. “This adds to the resilience of gas demand at a time of dwindling supply from Russia.”

UK warned Thursday evening about the narrow supply-demand margin due to tight power supplies. While National Grid ESO, the country’s grid operator, said there will be sufficient generation, it’s another sign of the difficulties faced by Europe’s electricity system this year.

Assistance from John Ainger.

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