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French nuclear shutdowns raising power price across Europe

Over the last six months’ wholesale power prices across Europe have exploded. German one-month forward power prices are up 60% since the start of January, while UK prices have doubled. That said wholesale power prices have fallen steadily since 2008 which still means today that prices are still lower than where they were back then. This period has been great for consumers such as heavy industrial users who could benefit from these power falls but with power prices on the rise again the question is whether those days of low power prices are behind us, and more importantly why prices have rebounded. It could be argued that this has happened because of rising fossil fuel prices, coal, oil and gas, which have each doubled in price since the start of the year. But actually a closer looks tells you something different. The problem is nuclear and in particular French nuclear.

Given that the power markets in Europe are very well connected together this means that tightness in one market has an almost immediate impact on all other markets. This happens because of simple arbitrage. The power goes from where it is generated to where it is needed. It is the reason in the past why German and French power prices are so closely correlated. Arbitrage pushes the prices together in both markets. However, this relationship began breaking down earlier this year and today French power prices are 2.5 times higher than German prices.

The reason for these extreme moves in French power prices is outages at French nuclear plants. France has 58 nuclear plants in operation of which 12 are currently being checked in relation to safety concerns related to critical parts for the steam generators which were supplied by the now defunct Areva. To make things worse the French regulator, the ASN, has asked Areva to investigate 6000 nuclear component files for potential misreporting on manufacturing and quality control from as far back as over 50 years ago. This review is likely to be completed next year but in the meantime those short term supply concerns have pushed European power prices to 5 year highs… Who was it that once said that nuclear will be so cheap that we won’t need to meter it?