Weather and politics keep European energy markets busy in November

European energy prices saw a mostly bullish picture over the past couple of weeks. Weather in Europe, Russian gas uncertainties and, of course, politics in the United States and Germany proved to be the key drivers of price movements.

Starting with the weather, Europe experienced the flip side of the renewable energy revolution in November. During the year, especially spring and summer, we saw a record amount of negatively priced hours across the continent – triggered by the strong rise of solar and wind power in combination with weak demand and robust hydro and nuclear power generation. In November, however, a so-called ‘dunkelflaute’ or ‘dark wind lull’ event hit parts of Europe for a number of days, with little wind or sunlight. Wind generation dropped to one of the lowest levels experienced over the past ten years. As photovoltaic power generation at this time of year is already significantly reduced and recorded temperatures were below the levels of the last two years, spot power markets turned very tight and prices spiked. The German day-ahead spot price briefly jumped above 200 EUR/MWh – reaching more than 800 EUR/MWh during one of the tightest hours – and many Eastern European markets soared to averages above 300 EUR/MWh.

A further consequence of the ‘dunkelflaute’ was a strong draw on gas storage across Europe to meet the higher gas demand generated by lower temperatures and little wind. As a result, the long-running EU storage overhang was finally eroded last month, flipping from a 2.5pp surplus to a 2.3pp deficit by the end of November. This not only means higher restocking demand next summer. It is also the reason why gas markets continue to react very sensitively to any news concerning Russian gas deliveries. There is still uncertainty around Russian gas flows through Ukraine, where expiration of the transit agreement at the end of the year makes a halt to deliveries likely. The US sanctioning of Gazprombank has also raised additional risks to gas supplies, although the market appears to expect off-takers will find ways to maintain flows. Even so, less comfortable gas storage than a few weeks ago, LNG supplies still lagging the performance of recent years, and Russian supplies likely to drop from January onwards have all added to the risk premiums for gas.

Aside from Russia, the European energy markets also looked to other geopolitical hotspots in the past month. Of course, it’s still too early to judge the consequences of Donald Trump moving into the White House for a second time. But topics such as trade tariffs or his conflict management around the Russian/Ukrainian war will certainly be of relevance in the months to come. Continuing on the subject of elections, Germany’s government collapsed in early November and a new poll was announced for February 2025. How to stabilise the weak German economy, often linked to the pricing of energy, is one of the core issues in the election campaign for all parties. Since Germany is still the largest economy in the EU and its financial electricity market serves as the benchmark for large parts of Europe, this election will be of particular interest to many market participants.

Last, but not least, we must also mention the final confirmation of the European Commission’s membership. The EC commenced work on 1st December and will face many difficult and important decisions. On the energy side, the market will be paying special attention to the long-awaited Industry Decarbonisation measures, the 2040 emissions reduction target, the finalisation and implementation of CBAM (the pricing of carbon emissions embedded in certain imported products), and ETS2 (the pricing of emissions from road transportation and heating), among many other issues.

With all this in mind, we can be certain that a busy 2024 will be followed by yet another exciting year of ups and down, challenges and opportunities. To prepare for what lies ahead, we wish all readers, customers and partners a peaceful Advent and Christmas season as well as a very Happy New Year.