Weather and politics strong drivers of energy markets

European energy markets in June were influenced significantly by a combination of weather patterns, political events, and market dynamics. Power demand across Europe continued to struggle to recover from last year's levels, contributing to lower power spot prices in most markets. In fuel markets, the mixed picture persisted, with gas prices gaining due to slow stock builds, while coal and carbon prices experienced relatively strong losses amid weak Asian demand and cautious market sentiment. Extreme market and weather events further fuelled price volatility, keeping market participants on alert for potential tail risk events.

On the power side, robust production from French nuclear power plants significantly increased net exports to neighbouring markets. However, this led to rising domestic power prices month over month. Meanwhile, high precipitation in Switzerland boosted hydropower production but also damaged some infrastructure in Switzerland and Germany. Export restrictions in Switzerland prevented this bearish development from spilling over into neighbouring markets, putting downward pressure on Swiss prices.

A significant incident occurred on 25 June when a power cut affected IT systems at EPEX Spot, leading to a rare decoupling of major markets in Central Northwest Europe. This disruption dictated backup regional auctions, lifting the German baseload spot price to 492 EUR/MWh, the highest level since the peak of the energy crisis in September 2022, with hourly prices reaching as high as 2,325 EUR/MWh. By contrast, the French spot price cleared at just 2.1 EUR/MWh. Although this event does not reflect market fundamentals, it highlights Germany’s high dependency on imports and how abruptly prices can respond to unforeseen events that reduce the country's import capacity. 

In the same week, several Balkan countries experienced power outages due to a cascading failure of multiple elements in their transmission systems. This was exacerbated by a heatwave, according to the Montenegrin grid operator. However, no transmission outages were listed on the Entso-e transparency platform, which has announced a detailed investigation in the coming weeks to better understand why the blackout occurred. This series of events highlights the region's vulnerability to supply disruptions and the critical importance of interconnectors in maintaining energy sustainability.

On the fuels side, gas markets experienced a continued uptrend due to tight LNG supply and maintenance in Norway and the UK, leading to lower-than-average stock builds. By contrast, coal prices declined on the back of subdued Chinese demand for coal imports, amid record coal stockpiles and a significant increase in hydro-based generation in the country. Carbon prices also fell as the outcome of EU Parliamentary elections and the newly called elections in France suggested a potentially less aggressive approach to environmental policies. 

Looking ahead to July, the outlook suggests continued volatility with a focus on weather patterns – including the start of a potentially very active storm season in the North Atlantic – and political developments, with elections in France and the UK as well as for the European Commission possibly impacting supply and demand dynamics across the energy spectrum.