EU power demand show signs of easing amid diverging trends

European electricity demand is showing early signs of slowing down with consumption in Europe's five biggest markets down 1.7% on year for the five months to end-May, grid operator data aggregated by S&P Global Commodity Insights show.

A net decline of around 13 TWh across Germany, France, Spain, Italy and the UK coincides with record wholesale power prices driven higher once again this week by disruption to Russian gas supplies. The TTF front-month gas contract was assessed by Platts June 16 at Eur120.35/MWh, the highest since March and up fourfold from June 2021.

"There are increasing signs that high retail prices and other factors are weighing on power consumption in some European markets, though the trend remains mixed, with Italian and German consumption holding relatively firm compared to some historically low consumption in Great Britain and France," Platts Analytics' head of European power analysis Glenn Rickson said.

UK power demand has fallen most, down 5% on year at 101 TWh, with a marked decline since April corresponding to the 42% hike in power and gas tariffs from April 1, bringing average annual bills close to GBP2,000/year.

Other UK factors include a milder spring year on year and longer-term structural demand destruction. UK power consumption is down 19% since 2015 versus a slight gain for Spain.

German load data to May, meanwhile, shows a 1.4% YoY drop with weather and industrial activity the main drivers.

France, where residential power tariff hikes have been capped at 4%, registered the biggest overall drop, down 7 TWh or 3.5% YoY with a milder spring reducing demand for electric heating.

Italy bucked the trend, consumption up 2.7% in the first five month.

Limited data provision and a variety of determining factors make it unwise to overinterpret demand implications for the rest of 2022.

"We expect 2022 consumption to fall somewhere between COVID-lows in 2020 and last year's partial recovery," Platts Analytics' Rickson said, adding that 2023 demand was set to recover slowly ahead of a full return to pre-COVID levels in 2024.

Around half of that recovery stems from assumed economic bouncebacks with the other half down to new demand drivers such as EVs, data centers and heat pumps.

Platts Analytics projects annual demand gains of 2% for 2023 and 2024 for the ten European power markets in its model.

Solar eases heatwave strain

Temperatures remain the biggest swing factor for demand with the current heatwave over Iberia set to boost demand peaks.

In Spain, peak demand on June 15 just below 38 GW is shy of peaks seen during this January's cold snap, but above last summer's peak in July, data by REE show.

In France, peak demand is set to peak around 58 GW, below summer demand records just above 60 GW seen during heatwaves in 2019 and 2020.

Winter heating demand however plays a bigger role overall and especially in the demand-heavy Northwest European markets with the seasonal ramp up from August the key driver for rising prices.

Supply may also get impacted by hot temperatures and some limited restrictions during off-peak hours for river-based reactors in France with so far only the 1.3 GW St Alban-1 impacted.

Rising solar can offset demand peaks with EU solar generation peaks on June 15 of 93 GW (hour 11) exceeding those for gas-fired generation around 92 GW (hour 17), Entso-e data show.

In the UK, minimum summer demand of 17.1 GW was expected to be slightly lower than last year but higher than 2020, according to National Grid Electricity System Operator.

Increases in generation connected to distribution networks have continued to lower transmission system demand year on year in the UK.

Operability challenges over the summer tend to be around periods of low rather than high demand, the ESO said.

Winter projections

While summer peak demand forecast at 32.8 GW was expected to be above 2020 and 2021, it was comfortably below a minimum available generation forecast of 35.1 GW for Great Britain.

The situation could change in winter if Great Britain was to maintain its price premium over French power which would indicate net exports onto the Continent resulting in a swing of around 8 GW from the traditional net import position bringing capacity into focus especially during times of low wind and high demand.

Overall, gas-for-power demand is forecast to remain relatively high this summer, but is set to drop sharply in winter, according to Platts Analytics monthly European power market report June 9.

Specifically for Q4 2022, lower demand forecast is to account for around half of the forecast 8 GW average decline in gas-fired generation across the ten European markets modeled by Platts Analytics.

Mandated power cuts, which look like an increased risk this winter as the gas supply outlook worsens, are not part of Platts Analytics base case scenario.

POWER DEMAND TRENDS (Jan-May, TWh)

Source: TSO data aggregated by S&P Global