Power prices in Europe are climbing as poor conditions for renewable energy coincide with heightened heating demand brought on by cold weather across the region. Germany and the U.K. have experienced significant price increases, with German electricity costs rising 12% to nearly $126 per megawatt-hour and U.K. prices jumping 14% to over $133 per megawatt-hour, according to Bloomberg data.
The surge is linked to a sharp drop in wind energy production throughout Western Europe. Forecasts for wind generation in the area, initially expected to range from 25-30 gigawatt-hours daily, have been revised down to below 20 gigawatt-hours for most days the week of Jan. 12.
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Germany’s wind power output is projected to fall steeply to 2,200 megawatts from a previous level of 24,000 megawatts. In the U.K., wind generation is also predicted to fall significantly, from 15,000 megawatts to just 3,600 megawatts.
The drop in wind energy production is driving increased reliance on gas-fired power plants. This trend is expected to impact carbon markets, as reduced renewable output could lead to greater use of fossil fuels, boosting demand for European Union carbon allowances.
The situation is part of a broader pattern observed this winter, with unideal wind conditions leading to periodic electricity price spikes. During low wind periods in recent months, both Germany and the U.K. reported prices exceeding $1,000 per megawatt-hour.
