Electricity prices in Europe jumped to all-time highs on Aug. 26, intensifying the energy crisis caused by Russia's invasion of Ukraine as winter nears.
The year-ahead contract price for electricity in Germany hit 995 euros ($995) per megawatt hour, while that in France soared beyond 1,100 euros, up more than tenfold from the previous year in both nations.
UK’s energy regulator Ofgem said it would increase the electricity and gas price cap almost twofold from October 1 to an average £3,549 ($4,197) per year.
Ofgem attributed the price surge to global wholesale gas prices following the removal of Covid-19 related restrictions and Russia’s cut to natural gas supply.
The Czech Republic, which holds the rotating European Union presidency, announced on Aug. 26 that it would call an EU energy crisis summit “at the earliest possible date.”
Energy prices have skyrocketed in Europe as Russia cuts off natural gas supplies to the continent. There are concerns that further cutbacks will be made this winter due to tensions over the war between Moscow and the West.
Gas-fired power plants provides 20% of European electricity, so the cut to supply causes higher prices. European gas prices on Aug. 26 hit 341 euros ($ 340) per MWh, near the all-time high of 345 euros ($ 344) recorded in March.
Besides the war, the shutdown of several nuclear reactors due to corrosion issues has caused electricity prices to rise as power production has dropped sharply. Only 24 out of the 56 reactors operated by giant EDF were online on Aug. 25.
“Winter is going to be a tough period for all the countries in Europe,” Giovanni Sgaravatti, research assistant at the Bruegl think tank in Brussels, told AFP. “Prices will stay high, possibly they can even go higher,” he added.
A study from Bruegel shows that EU nations have allocated 236 billion euros from September 2021 to August 2022 to shield households and businesses from growing energy costs, which started to rise as countries began to recover from Covid constraints and skyrocketed after the war.
EU nations have launched energy-saving plans recently to encourage the public to use less electricity during the winter.
Germany has announced that the temperature of public buildings would be capped at 19 degrees Celsius this winter while hot water will be cut off. Also, heating will be banned in private swimming pools from September.
To reserve energy, Finland is encouraging its citizens to turn down temperatures on internal heating by at least one degree, take shorter showers, and spend less time in saunas.
In France, an energy price cap has been put in place to shield households until December 31 to keep electricity costs in check.
Surging energy prices have also impacted industries across Europe. European fertilizer industry is being especially affected, as ammonia factories announced their suspension in Poland, Italy, Hungary, and Norway.
HSBC bank warned in a note that “recession is probably unavoidable” in the eurozone, projecting the economy to shrink in the fourth quarter and the first three months of 2023.
