(Bloomberg) -- European power prices surged above €600 a megawatt-hour for peak evening periods on Monday due to a collapse in wind generation, showing how tight electricity markets can become when renewable output is weak.
Wind and solar generation are set to remain low across northwest and central Europe through Wednesday, as a slow-moving weather front brings still, cloudy conditions across some of the region’s biggest power markets, according to government and commercial forecasters.
The wind lull is forecast to be especially acute in Germany, the UK and Benelux countries. The UK grid operator warned that electricity supplies may be tight on Monday morning as a result, forecasting a shortfall of about 1.4 gigawatts.
With natural gas prices already elevated this year, power prices are also high across Europe because gas-fired plants often set the marginal price of electricity. The impact is particularly pronounced during cold, windless periods, known by the German term Dunkelflaute, when renewable generation falls and more expensive fossil-fuel-fired plants are needed to meet demand. The more frequently these periods of low wind and solar generation occur, the more the region is likely to see prices spike this winter.
Greater heating demand could add to the tightness in power markets, with temperatures set to dip 1C to 3C below normal this week, according to MetDesk meteorologist Ben Davis.