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In 2019, Europe's power prices are expected to be at their
highest since 2011, having clawed back the losses accumulated in
the past 10 years. The annual average base-load contract is
expected to exceed €50/MWh in Germany in 2019, up €6
since 2018 and €20 from the low point of €30/MWh in
2016. At €52/MWh and €54/ MWh, prices in France and
Spain, respectively, will trade €14/MWh over their 2016 low.
All western European continental prices will trade over
€50/MWh, except for Nord Pool. Base-load prices will be
highest in Great Britain, at €61/MWh.
Third consecutive year of power demand
growth
EU28 power demand has been rising-albeit very moderately-since
2015. In 2019, power demand will increase for the third consecutive
year, with growth averaging 0.5% across the EU28, confirming that
the market fundamentals are, once more, solid. In 2019, EU28 power
demand is expected to be 2,790 TWh, a level similar to that of 2005
and 3% below the high point of 2008.
Growth will be strongest in eastern Europe; nevertheless, demand
growth will be positive in all western European countries aside
from the United Kingdom. Rising demand from the industrial,
commercial, and transportation sectors will outweigh the continued
decline in residential demand.
10% of renewable additions could be financed by
PPAs
In 2019, the volume of renewable capacity built without
government support will increase sharply as developers and
consumers enter corporate power purchase agreements (PPAs). IHS
Markit analysis suggests that 10% of new additions could be
financed this way. Since 2008, Europe has added 235 GW of net
renewable capacity. In 2019, another 27 GW of renewable capacity
will be connected to the grid, substantially above the 10-year
average. In Spain alone, 4 GW of new renewable capacity will be
added: IHS Markit analysis has shown that 25% of this capacity
could be financed thanks to PPAs.
Regulatory framework for the coming years now
known
As of 2019, both the framework for the operation of the power
market and the energy and climate targets that the European Union
is obligated to meet are now clear. The European Union has
approved, or will approve shortly, a series of directives to
deliver the energy transition as envisaged by the Clean Energy
Package.
Notably, the European Union set a renewable energy target of at
least 32% and an energy efficiency target of at least 32.5% in
2030. Interconnection capacity between member states will have to
rise to 15% by 2030. The package also sets out rules for the
participation of renewables in power markets, ensuring security of
electricity supply and capacity support.
End of the road for coal in Europe
Europe's coal plants operate under a ticking clock. At the very
end of 2018, Europe reached an agreement to include in the new
Electricity Directive a clause stating that power plants emitting
more than 550 grams of carbon dioxide per kWh will not be eligible
for capacity payments as of 2025. Most of Europe's hard coal and
lignite plants fall under this ruling, apart from some Polish
plants that may benefit from an extension. Starting in 2025,
Europe's coal plants will be fully exposed to the wholesale market,
with the safety cover of capacity revenues no longer available. The
outcome of this decision will not be uniform: some low-cost and
well-located assets may endure; nevertheless, the loss of capacity
revenues is an unforgiving blow for many.
In addition, political pressure on the coal industry will deepen
in 2019. Many countries such as the United Kingdom, France, and
Italy have announced a deadline for the closure of remaining coal
plants. Germany is currently considering the future of its coal
fleet: a proposal is expected in early 2019. IHS Markit estimates
that 5.7 GW of coal capacity in the EU28 will close in 2019. In
2030, total installed capacity will have halved, to 71 GW, of which
20 GW will be located in Poland and 27 GW in Germany.
