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Gas rally to have 'enduring effect' on European power beyond near term: Platts Analytics

Highlights

Prices to ease from 2023, but remain elevated

Germany swings to imports, Great Britain to exports

Italy moves to top, Spain becomes discount market

European power prices are forecast to ease from current record levels starting in 2023, but the current rally in gas will have "enduring effects" on the forward curve, according to S&P Global Platts Analytics.

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Its latest five-year forecast sees annual power prices dropping from average levels above Eur100/MWh in 2021 and 2022 to around Eur80/MWh for 2023-24 and down to around Eur60/MWh by 2026-27. For Germany, the five-year forecast average is now double compared to actual average prices over 2016-2020.

"The gas-driven surge in power prices in recent months is likely to have enduring effects beyond the near-term," Platts Analytics head of European power analysis Glenn Rickson said.

By 2023, the current elevated price situation will have mostly dissipated as gas storage stocks normalize and renewable penetration continues, Rickson said.

"Closures of coal and nuclear capacity, particularly in Germany, add support to prices over the next two years and also increase power prices' sensitivity to gas prices and vice versa," he said.

From a policy perspective, much of the noise is around accelerating decarbonization and limiting exposure to gas, while from an investment perspective, Platts Analytics expects greater appetite for low carbon flexibility, including storage, the report said.

Wind to top mix from 2025

Great Britain is projected to lose its place as Europe's premium market to Italy thanks to offshore wind development and a narrowing in its carbon premium, the report said.

Spain will become Europe's discount market on an annualized average basis from 2023, it said.

Europe's biggest power market Germany, meanwhile, is forecast to swing to net imports by 2023.

German gas-fired generation is forecast to rise above coal and lignite by 2025 for the first time ever.

Across Europe, gas generation is set to dip from 2019's peak until 2023 before recovering to 2021 levels by 2027.

Nuclear is forecast to fall almost 25% below 2021 levels by 2027 despite the start-up of Hinkley Point C.

Wind capacity is forecast to grow by roughly 100 GW to 263 GW by 2027, with wind set to top the generation for the 10 markets from 2025 assuming average weather.

Gains for offshore wind capacity will help swing Great Britain from net imports to a net export position.

Finally, solar capacity across the 10 markets is forecast to almost double to 276 GW by the end of 2027.

Platts Analytics' European power model incorporates 10 markets: Germany, France, Great Britain, Italy, Spain, Portugal, Belgium, Netherlands, Switzerland and Austria.