Energy prices in Europe have reached record highs this year. Europe’s benchmark French baseload power now reaches €100.4 per MWh.
Another example from Germany, Europe’s largest economy reached €96.43 per MWh.
The reasons for rising prices are likely a mix of factors. One reason is gas prices, which have more than doubled since the start of the COVID-19 pandemic. However, the shortage of natural gas in Europe may soon ease after Germany releases the Nord Stream 2 gas pipeline. Since the pipeline must be approved by German authorities, this could take several months. Nord Stream 2 is a gas pipeline that will transport natural gas from Russia to Germany.
Another reason for rising energy prices is rising carbon prices. Carbon offsets have reached record levels this year at over €62 per ton. The cost of carbon offsets in the EU is likely to continue to rise rather than fall. Europe wants to be seen as a leader in decarbonization. However, some countries are beginning to reconsider targets due to rising energy prices.
Inflation data have already taken on new dimensions in Europe as well. In Germany, inflation has already reached 3%. This means that inflation is at its highest level for more than a decade. This probably makes the Germans rather queasy in the stomach in thoughts of the hyperinflation in the Weimar Republic. That has encouraged Germans to invest in safe havens like gold.
In Europe, winter is just around the corner and high energy costs are more than unwelcome among the population. In addition, the rising energy prices in Europe show once again how dependent Europe is on Russian gas supplies. It remains to be seen if and when gas prices will ease and whether an easing of gas prices will also mean an easing of energy prices.
Also, one should not forget that natural gas causes high carbon emissions. Less than coal but significantly more than alternatives like wind or nuclear. Nuclear power plants will soon be shut down in countries like Germany and Spain.