Europe | Silent revolution: electricity prices are dropping

Summary

Lower gas prices, reduced demand and an increased use of renewable energies are the key factors driving a reduction in wholesale electricity prices across Europe. Futures contracts are pointing towards a stabilization of prices in the medium term.

Key points

• Key points:
• In the first two months of 2024, wholesale electricity prices stabilized in Europe, at average levels between 40 and 70 euros/MWh, far from the high, volatile prices seen in 2023 and especially in 2022. Notably, Spain hit a European low of 20 euros/MWh in March, a level not seen since mid-2020.
• This fall in electricity prices is underpinned by market fundamentals: reduced gas prices, lower demand and increased production from renewables and hydropower.
• In Spain, the dynamics mirror those seen across Europe, where gas prices significantly impact the wholesale electricity market. However, Spain enjoys a unique advantage in renewable energy technologies, partly attributed to its favorable geographical location.
• Wind, hydro, and solar energy collectively constitute nearly three-quarters of Spain's electricity mix. This dominance of renewable sources, alongside a decrease in demand, has substantially diminished the role of combined cycle technology as a marginal source in the energy market, dropping from nearly 25% in February 2023 to just 4% a year later.
• Futures suggest that European wholesale electricity prices may hover around current levels in the upcoming years. In any case, a “stable” regulatory framework will be needed to ensure predictability and confidence and to place Europe in a strategic and competitive position on a global scale.

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