Is Europe’s energy crisis over? Or winter price increase is expected?

After reaching record highs last summer, energy prices in Europe have finally returned to pre-war levels for gas, while electricity prices have even dropped lower in some nations.

At first look, it may appear that Europe’s energy crisis has been addressed. But this is partly a seasonal trend.

The prices on the EU’s wholesale energy market have reached new lows in several countries due to warm and sunny weather after running a historical high in August 2022.

For the first time last week, wind and solar generated enough electricity to meet the country’s demand in Belgium. Belgian authorities were even forced to reduce wind production and pay sizeable industrial power consumers to raise their consumption to absorb the surplus output.

The condition in gas markets is almost as exciting. Prices have rebounded to levels not seen since June 2021 – the year before the Russian invasion of Ukraine – in January, owing primarily to an atypically mild winter and a collapse in demand among industrial customers.

The trend continued in June, with European gas futures falling below €24 per megawatt hour to begin the month, a new two-year low after a 30% loss in May. This follows a historical high of more than €340/MWh in August of last year when Russia nearly halted all energy supplies to Europe in retaliation for sanctions put on the Kremlin for its war in Ukraine.

So, has Europe overcome the energy crisis? Yes, it has, but not completely.

A positive factor is that hot and sunny weather has contributed to higher solar power generation, with some countries establishing records. In contrast, rainy weather in other parts of Europe has resulted in a year-on-year increase in hydropower generation, as Sarah Brown, Europe’s lead at Ember, a climate and energy think-tank, said in an interview with Euractiv.

After a string of breakdowns in 2021-22, French nuclear reactors are also resuming operations or conducting maintenance work that had been postponed because of the Covid pandemic. As a result, the demand for fossil-fuel-generated electricity dropped. 

The European Commission noted in a report a progress made since the EU executive unveiled its REPowerEU plan one year ago, aimed at stopping Russian gas import, that measures adopted at the EU level have also helped.

Concerns over a winter energy shortfall dissipated as Europe began diversifying gas supplies and pushed through urgent initiatives such as a 90% gas storage target ahead of the winter heating season and a 5% reduction in peak-hour demand for electricity.

Looking ahead to next winter, Europe is also in a stronger position, with average gas storage levels hitting 60%, up from approximately 30% last year, according to Kristian Ruby, secretary general of Eurelectric, Euractiv reports. Increased nuclear and solar power generate a mostly favourable trend for next winter.

Nonetheless, Europe still needs to overcome volatile energy prices. Experts predict that as Europe increases its use of renewable energy, substantial seasonal fluctuations in prices will become commonplace.

With increasing renewables in the electricity mix, addressing seasonal price swings will be a critical challenge for Europe, making the topic one of the central policy discussions in the ongoing EU electricity market rules changes.