Yves here. The crisis triggered by Macron triggering early parliamentary elections and the resulting failure to form a coalition could, remarkably, intensify expected European energy woes. Winter is coming and this one is expected to be cold.
By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice
- Political instability in France, Europe’s top electricity exporter, raises concerns about reduced power exports and exacerbates the energy crisis.
- Rising natural gas prices and depleting storage threaten European industry competitiveness this winter, potentially leading to production cuts.
- Europe’s energy woes highlight the continent’s vulnerability in the global energy market, particularly with the looming end of Russian gas supplies.
Europe’s natural gas and power prices are rallying again as the proper heating season begins, adding to concerns that a new energy crisis is brewing.
The political turmoil in the top European electricity exporter and second-largest economy, France, certainly is not helping.
A prolonged government crisis after the ousting of Prime Minister Michel Barnier last week could result in reduced electricity exports from France to its interconnected markets, including Germany and Italy, Reuters market analyst Gavin Maguire argues.
This would be another layer of energy shock for European markets, which have been grappling with rising electricity and natural gas prices in recent weeks.
The rising budget deficit and the possibility of a no budget for 2025 could lead to politicians in France looking to curb the high French electricity exports, according to Reuters’s Maguire.
Considering that France is Europe’s top exporter of electricity, this would have repercussions on the power markets and prices across Europe.
With the fall of the government, any improvement of France’s public finances will now be postponed until a new government is formed, ING analysts said last week.
As a state-owned firm, France’s electricity giant EDF has contributed to the country’s piling public debt.
But EDF’s large nuclear reactor fleet that provides around 70% of France’s power and the rebound in hydropower generation have allowed France to boost its electricity exports this year.
“Buoyed by strong nuclear and hydroelectric output, France has exported record amounts of electricity to neighboring countries this year, despite limitations on eastern interconnections that restricted exports in the spring,” energy firm Engie said in its semi-annual briefing on the European energy market in September.
Electricity demand in France remains below 2020 levels, partly due to a loss of industrial output and competitiveness and consumer energy-saving efforts, Engie said, noting that demand has rebounded more quickly in Germany, the UK, Belgium, and the Netherlands.
France’s net exports of electricity are set to hit a record high in 2024, data from French grid operator RTE shows. That’s because maintenance on many nuclear reactors has been completed, and hydropower generation has rebounded.
There is no imminent threat to France’s huge power exports. Yet, the political instability in Europe’s largest net electricity exporter makes the European power markets even more nervous.
Europe’s industry is set to lose further competitiveness as high energy prices, rising natural gas prices, and concerns about gas supply this winter are increasing uncertainty about factory utilization amid rising costs.
European benchmark natural gas prices are hovering around a one-year high hit last month as cold snaps in November dashed hopes and prayers of a third relatively mild winter in a row.
In recent weeks, Europe has been depleting its natural gas stocks at the fastest pace since 2016 as demand has increased with the colder temperatures.
This adds to the looming end of Russian pipeline gas supply to Europe via Ukraine after December 31 and growing competition for spot LNG supply with Asia for winter demand.
This winter could inflict more pain on industries relying on natural gas and force curtailments in production, analysts and industry executives have told Reuters.
The much higher energy costs in Europe are putting its industries at a disadvantage compared to the U.S., Asia, or the Middle East.
For example, the current Dutch hub price is almost five times higher than the benchmark U.S. natural gas price at Henry Hub.
The highest spot-based electricity prices in Europe since February 2023 threaten industrial production in key economies and loom large over business sentiment.
Amid rising energy prices and fast-depleting natural gas inventories, European energy markets are more anxious than usual as the governments of the two biggest economies, Germany and France, have now collapsed.
Germany should shut down more manufacturing to decrease demand.
It’s nuts that I have to fork out over 300€/month over the winter months to stay warm while we export so much electricity. Germany made their bed when they scuppered nuclear so now they should lay in it.
I’m not sure why you should think that exports are driving up French electricity prices – its almost certainly the opposite. It is exports that is keeping the system going – the French system’s dependence on big thermal plants and hydro means that imports and exports are essential for an efficient generating system. French electricity would almost certainly be far more expensive without its interconnections as it would require far more gas generation to balance loads. France is now benefiting from investments a few years back upgrading its nuclear power plants – this, along with a wet summer is the cause of Frances surplus.
The biggest buyer of French electricity is the UK, followed by Italy and Switzerland, with interconnections with Spain being particularly important. Germany is actually quite a minor customer, and its imports are part of seasonal balancing.
Admittedly, I don’t know much at all about how electricity is sold. My assumption was that it follows the general commerce logic: more demand (in this case, other EU nations for which I used Germany as a target [’cause fuck’em]) leads to an increase in prices. I’m happy if that logic does not work with electricity because supply can readily be increased, but my electricity bill is increasing while local natural resources produce most of the electricity so inflation shouldn’t be a factor.
The spot market for electricity is based on the highest priced bidder at any one time, which is invariably gas generating plant. So thanks to the issues we all know about with gas supply, electricity prices are very high, even when your electricity is mostly coming from another source.
Frances surplus power is helping to keep prices low in its neighbours. It provides a powerful counterbalance both to supply/demand peaks and troughs, and helps keeping prices lower.
As I noted below, the article somehow manages to turn a good news story into something ominous.
Thanks to the issues with gas, and I would add, two more factors:
* The EUs promotion of using spot prices as the general market price mechanism means demand destruction of household use and massive profits for energy companies when prices goes up. Another approach would be to see spot prices as a market mechanism only for the advanced customers, in effect largish manufacturing corporations that can utilise low costs which extra shifts and close down shifts when prices are high.
* The EUs ban on price discriminiation of foreigners which if memory serves was instituted some 10-15 years ago. Before that spot prices could go through the roof in one country without much effect on the neighbouring country. The neighbour simply got paid more for its excess but kept prices stable on its own market as they didn’t have a lack of electricity (grid controllers are as rule national). Now if the spot price goes way up in Germany it also does so in surrounding countries.
Without these regulations, this belief in the supremacy of the free market, electricity prices for a household in France would not move much if Germany lacks power. And vice versa, which might have kept down prices outside of France when many of its reactors stood still in 2022 (though I am not certain to what extent France had to import versus the extent to which it just couldn’t export, hence the might).
The EU has mandated a California Energy Crisis style energy market, you know the one where Enron **familyblog**ed rate payers like a drunk sorority girl at a Young Republicans convention.
I cannot speak to France, but I have heard (probably idle) talk from Spaniards that blowing up the electrical interconnects over the Pyrenees so that they don’t have to pay for French and German mismanagement of their energy sectors.
Uk is in a different time-zone so the peak is out of sync with European Mainland which means the Interconnector is bi-directional
https://en.wikipedia.org/wiki/HVDC_Cross-Channel\
https://www.nationalgrid.com/national-grid-ventures/interconnectors-connecting-cleaner-future
It is part of the European-wide Electric Grid which Germany unilaterally screwed up by going “Sonderweg” and unbalancing load across the East-West axis. The major component of German energy costs ist the Transmission Network charges. I recall a meeting where the head of EOn stated it was better to stop generating electricity and move to transmission because they could be loss-making at generation level with all the profits being downstream.
The overloading of generation with wind and solar at peaks and seasonally could render standby-generating sets loss-making.
UK has sites hidden by trees around the network with diesel generators to balance out load – they are kept discreetly out of public sight.
Europe is doomed as the world’s largest energy importer. I really cannot see how BSH etc can sell traditional ovens with 5kW rating any longer and see the explosion in sales of air-fryers from China as the consequence. Likewise the replacement of central hot-water generation in apartments with local “Durchlauferhitzer” running on electricity is a consequence.
Then the whole business of EVs and room air-conditioner sales (because of so much insulation houses sweat in summer) runs counter to this consumer orientation.
Some areas are cutting street lighting which makes for personal security issues. It is not so much France alone – they wanted to close a nuclear facility on a geological fault-line in NW France but Germany intervened as it supplies Baden-Wuerttemberg with electricity and Southern Germany is dependent on France. The real question is load-balancing across the European Grid.
This will become very critical once Russia destroys the Interconnector linking Ukraine to the Polish Grid which is also bilateral. Only nuclear stations still function in Ukraine but once the Transformers are taken out they will be off-line.
https://notesfrompoland.com/2023/01/11/poland-and-ukraine-to-open-energy-bridge-linking-electricity-grids/
So it is not simply France but the entire East-West Grid and load-balancing coupled with German “Sonderweg” which has caused a huge dependency on burning coal which the Greens now want to obstruct. France is importing LNG through Marseilles I think.
Perhaps I missed it, but I don’t see it explained why would France want to curb energy exports. What would be the logic? At minimum, more exports means more money to France, no?
I read the article and links several times trying to work out the logic. I don’t think there is one. The initial idea seems to be that political turmoil means less investment in power which means higher prices, but that is only in the very long run. Its not news that France is struggling to work out how to replace its fleet of nuclear plants since its Gen V design is a bust.
French electricity generation is mostly either nuclear, hydro or solar. For all of those, the marginal cost of generating more power (assuming there is capacity) is very low. So utilising and inbuilt extra generating capacity for export makes perfect sense – it makes the system more, not less efficient, and provides useful additional income for the French, and helps out the UK, Italy, Switzerland and Germany for a variety of reasons.
RTE, the French power company is raking it in right now thanks to past investments in upgrading its nuclear plants, and a wet summer topping off the reservoirs, along with high prices caused by gas shortages. Unexpectedly low demand means they’ve plenty to export, which is vital for Europe in winter. So, typical of OilPrice these days, they contrive to turn a rare good news story into one that purports to be a bad news one.
RTE? Surely EDF? Or RWE before it merged with Won and they were German anyway.
Definitely not RTÉ though!
PS Kneecap won Best British (LOL) Independent Film and another six categories last night. Have you seen it yet…?
I don’t see it either.
If french nuclear is up and good to go (in contrast to 2022 when half the plants were shut down for security reasons half the year), the economic thing to do is to run them on full capacity (except for planned maintenance). Nuclear’s main cost is capital cost. Starting and stopping nuclear plants causes more wear and tear then running them at stable output. France has more nuclear power then it uses ona typical day and uses exports as a way to balance the grid. French nuclear reactors can waste some of the production as another way to balance the grid without having to turn off the reactor, but then they don’t get paid.
I don’t really see how the political crisis would spill over onto electricity. Not saying it can’t, but I don’t see how.
There is a story in Links today of how France is being forced out of Niger which happens to be a major source of France’s uranium. Something like a fifth of the 90,000 tonnes that France imports come from this country. France may be able to source uranium from other countries like Uzbekistan, Australia and Namibia but I bet that they will be paying more and that will make their electricity more expensive-
https://www.bbc.com/news/articles/czjd70mzge2o
But as far as the political turmoil is concerned, that is all on Macron.