Europe’s Hot, Dry Summer Raises Winter Power Market Risks

10g(4mjb8nf)czmeg{w0]mio_media_dl_1.png RTE

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(Bloomberg) — Europe’s power markets are beginning to price risks for this winter as concerns grow that persistent drought will prolong constraints on French nuclear generation and leave the region more reliant on limited natural gas supplies.

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While the war in the Middle East has dominated energy markets by driving up gas prices, traders are increasingly focused on the risk that Europe’s hot, dry summer could worsen an already tight winter supply outlook. Energy Aspects Ltd. expects Europe to enter winter with the lowest end-October gas inventories in 14 years if Middle East shipments don’t recover, while ICIS says low river flows threaten to constrain parts of France’s nuclear fleet into September.

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“The bigger risk now may be drought conditions continuing into autumn and possibly even winter,” said William Peck, a senior European power analyst at Energy Aspects. “If this coincides with no uptick in Middle East supply, the market could start getting very concerned for the winter outlook.”

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France’s December power contract has risen 15% to about €116 per megawatt-hour since the start of July, almost double last December’s average spot price. Germany’s December contract has gained 17% this month to about €137 a megawatt-hour, about 50% higher than spot prices at the end of last year.

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While the risk of widespread heat-driven reactor cuts is expected to ease after August, ICIS says France’s Chooz plant is at particular risk going into September, which depends on the Meuse river.

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At the same time, French reservoir levels have been falling and are now at their lowest point for this time of the summer since at least 2015, according to data from RTE. Elsewhere in Europe, the prolonged dry spell has depleted the Nordic region’s hydropower reserves to their lowest levels for this time of year since 2018, according to data from Volue.

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