Wholesale Power Prices in Europe: Continuity and Change

DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
METHODOLOGY 1
SOURCES 1
ANALYSIS 2
European power market fundamentals are influenced by a host of variables, such as economic growth, commodity input costs, weather conditions, regulation and capacity margins 2
Changes in economic growth often alter patterns of power consumption 2
Trends in energy commodity prices can have a material impact on wholesale power markets 3
Seasonal weather fluctuations maintain an important relationship with wholesale energy demand and prices 3
The regulatory backdrop is integral in shaping power market landscapes 4
Tightening capacity margins can contribute to increased volatility and an overall higher price environment 5
Despite an upturn in oil prices, wholesale power prices remain weak in the aftermath of the global downturn and financial crisis 6
Particularly cold winter weather conditions across Europe led to levels of record demand yet failed to boost prices 7
Other recent developments are likely to have a mixed impact on prices Upcoming risks and uncertainties for European utilities 7
An historical analysis of the European generation mix 9
Datamonitor predicts that for the next six to 12 months, power prices will remain much lower than in 2008 10
The European economic recovery will be prolonged and present little support to wholesale power markets 10
The fading turmoil in global financial markets bodes well for utilities' investment and financing 10
The Copenhagen summit and the European regulatory climate will further shape wholesale prices in different ways (1/2) 11
Near-term build of power plants should lift generating capacity margins and ease future tightness in wholesale markets 13
Datamonitor forecast the UK annual average wholesale power price to trade well bellow 2008 levels yet continue on a moderate uptrend 13
Power prices in the near-term will fail to achieve levels seen in 2008 and are likely to lag recent moves in oil and gas prices 14
APPENDIX 15
Further reading 15
Ask the analyst 15
Datamonitor consulting 15
Disclaimer 16
List of Figures
Figure 1: A low but detectable correlation exists between real GDP and power consumption in the EU27 2
Figure 2: Throughout most forms of power generation, fuel accounts for a substantial proportion of expenses 3
Figure 3: European month-ahead wholesale baseload prices May 2003-August 2009 4
Figure 4: Sufficient spare generating capacity is crucial to containing spikes in power prices 6
Figure 5: Both oil and power prices have been influenced by movements in the dollar and financial markets 7
Figure 6: Upcoming risks and uncertainties for European utilities 8
Figure 7: The generation mix can impact wholesale power prices, particularly as hydrocarbon based forms of generation face commodity price risks 9
Figure 8: The 2008 highs in commodity prices are unlikely to be revisited over the near term 10
Figure 9: The rally in leading stock indexes points to gradually improving conditions in financial markets 11
Figure 10: Successful capacity build (2009-12) in key consumption markets will help to contain price pressures 13
Figure 11: Natural gas prices are expected to remain muted, while oil, which may remain elevated by speculative drivers, will maintain a disconnect from wholesale power prices 14