European power prices are forecast to hold near current record levels until 2023 on capacity closures and strong gas and carbon prices, before new renewables capacity and falling gas prices reduce power prices, according to S&P Global Platts Analytics.
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The unit's latest five-year forecast to 2026 sees annual average power prices inch higher to a range between Eur80-Eur90/MWh in 2022, almost double pre-coronavirus levels for most of the 10 markets covered by Platts Analytics using in-house commodity inputs for gas, coal and carbon.
"After 2023, robust renewables growth complements the effect of renewed gas weakness as LNG liquefaction starts to bolster supply to 2026 to push down power prices," Platts Analytics head of European power analysis Glenn Rickson said.
"COVID remains a risk to our view, now with a greater weighting to macroeconomic and supply chain factors, rather than new lockdowns, but we assume no material impact on European power consumption from 2022," he added.
Germany, which is most affected by coal closures and the nuclear exit in 2022, was forecast to almost triple between 2020 and 2023.
As a result, Germany would swing from a net export to a net import position.
By contrast, Spain moves to a discount reflecting ambitious wind and solar targets with annual average power prices forecast to fall around 40% between 2022 and 2026.
Great Britain is forecast to loses its place at the top to Italy due to a narrowing in its carbon price premium and strong offshore wind growth, it said.
"GB slips to a discount to Belgium and Germany, becoming a net winter exporter by 2026," Platts Analytics' Kerry Thacker-Smith said.
The EU Commission unveiled its 'Fit for 55' package on July 14, setting binding decarbonization targets for 2030.
"We now anticipate EU ETS carbon prices reach Eur80/mt ($94.84/mt) by 2030 and that the impetus for medium-term renewable growth/electrification is strengthening," Platts Analytics said. "Even so, consumption doesn't climb above 2019 levels until the end of our forecast, despite electrification of transport and heating."
Power demand was already recovering to pre-pandemic levels in markets like Germany and GB.
Gas-fired power generation was forecast to hold its ground in the face of renewable expansion and nuclear and coal plant closures.
Italy and Great Britain were set to remain the biggest markets for gas-fired generation with gas capacity forecast to increase 12 GW to 169 GW by 2026.
"Solar sees the greatest capacity growth in our forecast – from 130 GW at end-2020 to 256 GW by end-2026, with all markets except Italy and Great Britain seeing at least a doubling in installed levels," it said.
Wind capacity was forecast to increase 50% to 244 GW by end-2026 for the 10 markets covered.
Nuclear capacity was set to shrink 19 GW to 76 GW by end-2026.
Platts Analytics' European power model incorporates 10 markets (Germany, France, Great Britain, Italy, Spain, Portugal, Belgium, Netherlands, Switzerland and Austria) and uses commodity inputs from Platts Analytics five-year forecasts for gas, coal, EU and UK carbon prices.
EUROPEAN POWER GENERATION MIX* (average MW)
*average annual generation for DE, FR, GB, IT, ES, PT, CH, AT, BE, NL (forecast from 2021)
Source: S&P Global Platts Analytics 5-Year Forecast (Aug. 2021)