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2019 - winds of change in Europe's power and gas markets

09 January 2020 Alun Davies Coralie Laurencin

Winds of change blew across Europe's gas and power markets in 2019. Europe's gas market showcased the full range of flexibility to allow the global gas market to balance. The power market witnessed the gradual unfolding of the energy transition with a marked push towards lower or zero carbon production.

  • Europe fulfilled its role as the LNG market of last resort, setting records for net imports each month. Near-record low gas prices were seen for a fourth quarter winter period, averaging €12.5 per MWh ($4 per MMBtu) at TTF, a level only observed once in the last ten years, in Q4 2009 following the aftermath of the global financial crisis and during the ramp up of Qatar's significant LNG liquefaction fleet.

  • Gas import capacity to Europe has hit a record level as the Ukraine gas transit deal came smoothly to resolution. The TANAP pipeline has passed through its first full year of operations and Turkstream started up without a hitch, including onward flows into the EU. Work on Nord Stream 2 was halted just before completion by the imposition of US sanctions in December; completion is now expected during the second half of 2020.

  • Fuel switching driven by low gas and high carbon prices has dramatically reduced carbon emissions. A changed commodity price environment pushed Europe's gas plants firmly into merit, pushing out coal, and at times lignite, production. European coal production fell, lowering emissions -- Spanish coal production dropped by two thirds, combined German coal and lignite production dropped by 25% compared with 2018. German emissions in the power sector have dropped by 50 Mt meaning Germany emitted 35% less than in 1990. Spanish power emissions dropped by a third.

  • Renewables gained a greater share of the power market as capacity rises and costs continue to fall. In 2019 wind was the second largest source of generation in Germany and the UK. Wind and solar accounted for 70% of additions with over 6.5GW added in Spain notably. Costs of offshore wind continue to decline as evidenced by the UK's third tender results, confirming offshore wind's attractiveness owing to baseload production, low costs and higher public acceptance.

  • Headwinds emerging for onshore wind. German onshore wind additions fell below 1 GW, far below yearly additions seen since 2000. Local opposition has frozen Europe's leading market which incorporated onshore wind to reach the ambitious 2030 target of 65% renewables in power generation. Rising local opposition is a growing feature of many promising wind markets driving a shift to more ambitious offshore wind plans in order to meet decarbonization targets.

  • Accelerating policy ambitions for decarbonization: Decisions in 2019 in Germany, Greece and Hungary bring to 14 the number of European countries that have committed to phasing out coal-fired power generation. In addition, ten member states have committed to net zero carbon targets for mid-century or earlier and the European Union is expected to commit to a 2050 net zero carbon target shortly.

Alun Davies is a senior director with the European Gas and Power team at IHS Markit.
Coralie Laurencin is a senior director with the Gas, Power, and Energy Futures team at IHS Markit.

Posted 9 January 2020.

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