Energy prices in Germany have returned to 2022 levels, driven by a combination of factors that have exacerbated the energy crisis stemming from the invasion of Ukraine and the European Union’s sanctions on Russia.
The primary trigger was a phenomenon known in German as Dunkelflaute – a combination of low temperatures that cause energy demand to rise and an almost complete absence of wind, which severely limits wind power generation.
This situation, typical of cold anticyclones, represents one of the worst scenarios for electricity costs. Germany relies on gas-fired power plants to compensate for the drop in renewable production, a much more expensive solution that increases energy bills.
On December 12, German consumers paid an average of €395 per megawatt-hour (MWh), the highest price since December 2022. In some time slots, such as between 5pm and 6pm, the wholesale market price peaked at €936 per MWh, a level not seen in 18 years.
The lack of wind has been a major driver of this spike. German wind power, onshore and offshore, typically generates about 20 gigawatts (GW) at this time of year.
According to data from the specialised portal Montel, in the week starting December 9, it barely exceeded 3GW. Adding to this was the low output from solar photovoltaic energy due to overcast skies, forcing gas-fired power plants to operate at full capacity, drastically increasing generation costs.
Although electricity prices are likely to drop on December 13, settling around €180 per MWh, they will remain high compared to other European countries. In France, the average price is expected to be €178, in Poland €145 and in Spain €143.
In November, weak wind conditions pushed German prices above €800 per MWh in specific time slots, although they then receded.
The rapid decline in gas storage reserves has further complicated the situation. From a 98 per cent capacity at the start of November, German reserves have fallen to 87 per cent, with an accelerated decline expected in the coming days.
Across the European Union as a whole, gas reserves have also decreased, dropping from 95 per cent to 80 per cent capacity in just five weeks, marking the fastest decline since 2016. This trend reflected the increased use of gas-fired power plants and higher heating demand, exacerbated by low temperatures and the ongoing energy crisis.
The surge in energy prices has affected the German economy, particularly energy-intensive industries such as manufacturing, steel and chemicals: cornerstones of Europe’s largest economy.
On the domestic front, households have faced rocketing energy bills and worsening energy poverty, increasing pressure on the government to provide subsidies and relief measures.
The German Government has announced new initiatives to mitigate the price-rise impact, including price caps on gas and increased subsidies for the most vulnerable consumers.
At the European level, the EU co-ordinates efforts to optimise shared reserves and secure diversified supplies over the long term, exploring potential agreements with suppliers such as Norway, Qatar and the US.
The crisis has also underscored geopolitical tensions. Sanctions on Russia have intensified the need to reduce Europe’s reliance on Russian gas but this has made the continent more dependent on alternative suppliers, potentially creating long-term vulnerabilities.
Simultaneously, high gas prices in Europe have increased the competitiveness of other economies, such as the US, which can export liquefied natural gas (LNG) at premium prices.
Germany’s Greens party economy minister Robert Habeck has called for the relaxing of fines on automotive emissions that were set to hit European Union carmakers with €16 million in fines. https://t.co/UiJsfhSklE
— Brussels Signal (@brusselssignal) December 12, 2024
