Towards a new wave of revaluations in the coming months

Towards a new wave of revaluations in the coming months

It can energy cost ceased to occupy the news with the intensity of previous months, but the estimates of analysts and market officials are multiplying internationally who judge the de-escalation in prices temporary and predict a new cycle revaluations the next months.

As they say, Europe left behind a mild winter which allowed it to maintain high stocks natural gas. However, intense droughts have depleted the water reserves in the reservoirs, thus making natural gas more necessary. At the same time, the growth of China, which consumes as much gas as the whole of the EU, is a second decisive factor for the development of prices and the availability of LNG cargoes, which continues to maintain uncertainties.

According to Mr. Dimitris Kardomatea, former DESFA executive And natural gas market analyst, with the measures taken by Europe last year (reduction of consumption, abundant supply of LNG), it managed to reduce its dependence on Russian natural gas from 150 to 60 billion cubic meters of natural gas (bcm). About 18 bcm is purely due to favorable weather conditions. In absolute terms, the EU’s dependence on Russia is estimated to have fallen from 40% to around 20% and the trend continues to be downward. “In the same period, it filled its underground storage almost 100% at the start of winter 2022-2023 despite shockingly high prices, which at the end of winter are around 55% full compared to 25% in 2022,” he says. .

These conditions are also behind the continued decline in prices of the Dutch trading hub TTF, which in the previous days was below 37 euros for the first time since July 2021, the futures contracts for June are trading at 36.9 euros/MWh, while in July at 37.3 euros/MWh. The market price shows that the walls of speculation have been knocked down, while last year the price of natural gas in TTF exceeded 300 €/MWh. But it is still far from the pre-crisis levels which were between 10 and 20 euros/MWh.

What is curious is that under these conditions the Greek market does not obey, which keeps wholesale prices at high levels. Thursday, May 4, the price was 126.52 euros per megawatt hour, with a minimum of 94.60 and a maximum of 180 euros.

“Bell” drought

The mild winter has therefore contributed to a better response to the energy crisis by reducing the demand for natural gasbut brought back to the fore the problems of drought and shortage of water reservoirs and the availability of hydroelectric and nuclear power plants after half a century of operation.

He underlined this recently with his statements and CEO of Helleniq Energy, Andreas Siamisii, warning that there is no need to be complacent. Drought and high temperature issues are potential threats to the energy system this summer and are expected to increase demand for natural gas, also driving up fuel prices.

2022 was the worst year for Europe in terms of drought and water scarcity, but 2023 is already looking even worse. Countries like Spain are already facing severe water shortages and high temperatures that have even reached 40 degrees Celsius. The return of El Niño predicts a hotter summer this year, which, combined with the drought, is expected to take a toll on the electricity system of many countries. Spain, southern Portugal, Italy and France are expected to be the hardest hit countries, but Greece, Romania and Bulgaria are also at risk of drought, analysts said.

These predictions there are fears of blowing up the internal electricity market, which also experiences this year the difficulties of the pre-election and post-election period and leads the government to take early measures. The decision of the competent ministry to announce double subsidies for the months of May and June, for a total amount of 47 million euros, is part of this logic. “Prices remain de-escalating, but the energy war in Europe is not over”, explains the Minister of Environment and Energy Kostas Skrekas.

Pressure on the Commission

In the same context, the government is pushing Brussels to give the green light to an extension until the end of 2023 both the mechanism for recovering excess revenue from electricity generators on the wholesale market and the pricing mechanism on the retail market per month. It should indeed be noted that on the one hand it is the Ministry which is putting pressure on the Commission to extend the measures and on the other hand the electricity producers and the private energy suppliers who are requesting the withdrawal of the measures. The latter recently held a meeting with the Director General for Energy (DG Energy) of the European Commission, Dite Jules Jorgensen, in Athens.

Electricity producers call for removal of capping mechanism and price forecast arguing that the market has stabilized and prices have fallen. Especially with regard to the issue of the ceiling, the representatives of the sectors point out that the revenue collected from the maximum price mechanism is now minimal to non-existent. On the contrary, the revenues of RES producers, when they exceed the agreed compensation prices in any case, are directed to the RES Special Account (ELAPE) and from there they can be used to subsidize the accounts.

On their side, suppliers talk about market distortions, noting that the extraordinary interventions in the wholesale and retail markets have significantly affected competition and prices. Therefore, they point out, any extension must be carefully assessed, taking into account how consumers will be affected by an extended period of directed market operation.

The Greek request also includes an amendment to the draft EU regulation, which provides that only industry and energy storage will be subsidized. Producers are also asking for a payment mechanism for available power or flexible power for units natural gas and hydroelectric power generation.

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