March saw mix of mild weather and supported fuel markets

Persistently mild weather conditions throughout the past month played a pivotal role in stabilising the European energy outlook, especially during the temporary challenges posed by upward movements in fuel and carbon prices. Unusually warm temperatures, in certain instances setting new records, set power demand plunging to levels witnessed during the same period in 2023. Most notably, German power demand plummeted even further than last year’s lows, reflecting the continuation of a subdued macroeconomic outlook.

On the supply side, renewable power generation – including intermittent solar and wind, as well as dispatchable hydropower – has been ample. This triggered several peak hours at zero or negative prices during the closing days of the month. In fact, Spanish spot power prices entered negative territory for the first time amid high hydropower generation, with stocks sitting well above seasonally typical levels, as well as low demand during the Easter holiday. Similarly, early snowmelt in France bolstered hydro production, pushing it towards the higher end of the 2019-2023 production range. Meanwhile, the robust performance of nuclear power covered more than 80% of domestic demand, lifting net exports to Germany, Belgium, and Great Britain to a record level for this time of year. In particular, in Great Britain’s case, the re-established carbon premium and high availability of interconnectors – including the recently commissioned Viking Link – facilitated the redirection of flows from the continent and Nordics towards Great Britain.

Against the backdrop of the recent oversupply in the French market, the nuclear fleet flexibly ramped down, in some instances reducing output by 13 GW within a single day. This proactive adjustment was triggered by multiple hours of negative prices, undermining commercial viability. On top of that, earlier this week two French nuclear reactors underwent modulation outages, a strategic move aimed at saving fuel in the prevailing low-price environment.

In the fuel markets, gas prices witnessed an incremental increase over the past month, followed by a stabilisation period driven by indications of growing competition for LNG. Notably, strong buying interest emerged in Asia, triggered by substantial discounts on oil-linked contracts. This raised the possibility of Europe only being able to mitigate its significant storage surplus through cargo diversions. Meanwhile, Russia’s focus on targeting Ukrainian storage infrastructure has diminished the possibility of storing European gas there, while the extensive damage to Ukrainian power infrastructure has redirected power flows from Eastern Europe towards Ukraine. Coal prices also followed an upward trajectory, propelled by a significant bridge collapse in Baltimore, USA, which resulted in disruptions to coal shipping operations. At the same time, EUAs rebounded from their depressed levels, likely due to the anticipation of tight fundamentals in the later stages of this trading phase. Furthermore, the EU Commission’s recent announcement of a reduction of approximately 212Mt in total emissions within the ETS last year may temporarily reinforce a bearish sentiment. However, in the long term this issue is expected to be addressed through interventions by the Market Stability Reserve.

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