London • China’s rampant need for energy is boosting electricity prices across Europe, handing the continent’s utilities a much needed respite from turmoil at home. From Germany to the UK, power prices are at their strongest level for this time of year since at least 2013. They’re following coal and natural gas prices higher as utilities in Asia burn more fuel to meet increasing demand. And the cost of carbon emissions has almost tripled in the past year after a European Union push to clear up a surplus of certificates sold to generators.
The gains, appearing at a time when prices usually soften for summer, are giving utilities from RWE AG to Vattenfall AB a firmer footing to deal with pressure to clamp down on pollution and reduce greenhouse gases. The rally may have further to run, if only because prices peaked at roughly double their current level in 2008 at the top of the last economic cycle.
“As long as the global economy continues to grow, energy prices will keep on rising,” said Christian Holtz, an energy consultant at Sweco AB in Stockholm. “At the end of an economic cycle, fuel and carbon emission prices can do so pretty dramatically. We expect growth to continue for now.” China’s thirst for energy is strengthening prices everywhere — and across different fuels. Coal demand has been increasing in each of the past five years and is especially strong this year because of unusually warm weather.
“A warm spring in China has led to increased demand for cooling,” said Marius Holm Rennesund, a partner at the Oslo-based THEMA Consulting Group. “The nation’s hydro reservoirs are low. The raised demand has to a high degree had to be met by more coal-fired power generation, which in turn has seen demand and hence prices for coal climb.”
Europe’s power utilities have yet to benefit from the jump in power prices, according to Macquarie Group Ltd. It expects the biggest gains to come for shares in Electricite de France SA, Fortum Oyj and Verbund AG, which produce mainly without fossil fuels. They feel the gain of higher power prices without having to pay much more for gas and coal.
A key driver is Europe’s own consumption of gas and power. A cooler- than-usual winter depleted gas storage, then it turned hotter weeks earlier than in past years. As a result, gas imports from Russia are setting records during a season when demand usually ebbs and utilities refill their tanks. Concern that the summer will be much hotter-than-normal is helping push up prices, said Blazej Radomski, head of analysis for Germany at the consultant Wattsight.
“One of the reasons for very high prices is a positive premium related to the worries of a heat wave continuing during the summer months,” Radom- ski said. “Especially Poland was experiencing huge spikes last summer due to cooling water problems.”
Utility shares remain buffeted by issues beyond the price of energy. Enel SpA, which is the biggest in Europe by market value, tumbled since the start of May as a populist government took over in Italy. Germany’s leading power generator, RWE, has moved sideways since announcing a US$22 billion (RM88 billion) asset swap with its rival EON SE in March. It warns that margins remain slim and the outlook is never certain.
“We don’t know if hard coal prices will stay up,” Markus Krebber, RWE’s CFO, said in an interview in Berlin earlier this month. “The pickup has been marked as investment in supply remains scant and demand in Asia rises. It may be good for us but not for power intensive industries.” Even so, higher power prices are a relief to for an industry that has started to see the value of its output turn negative at times when wind and solar farms flood the grid. In addition to paying billions of euros to close coal plants and reduce emissions, the industry is restructuring to integrate renewables into its network and allow competitors into what was once a monopoly in terms of generating and supplying electricity.
“Prices are coming back to normal levels,” said Torbjoern Wahlborg, head of generation at Vattenfall AB, which generates power from Sweden to Britain. “We’re making money now, which is a good feeling compared with a few years ago where we were under pressure.” — Bloomberg