energy storage system

Analysis of the reasons for the rise in electricity prices in Europe

Analysis of the reasons for the rise in electricity prices in Europe
The rise of electricity prices in Europe has attracted widespread attention and brought certain challenges to the economies and energy markets of various countries.
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    At present, high temperature and heat waves are sweeping across the northern hemisphere, and Asia, North America and other regions have set new high temperature records one after another.

    Abnormally high temperatures have greatly increased the demand for electricity, and extreme weather has also affected the stability of the power supply system.

    Many countries have taken measures to urgently respond to the tense power supply. Geopolitical factors have led to a structural shortage of energy supply in Europe. The abnormal high temperature and dry weather in summer has significantly reduced the generation of hydropower, nuclear power, and wind power.

    High temperature across the northern hemisphere

    1. Why have electricity prices in Europe been on the rise recently

    1) Marginal pricing mechanism in the European market

    The European electricity market adopts the marginal pricing model, and according to the peak-shaving capacity of the generating units, it will be connected to the grid in accordance with the order of new energy, hydropower, nuclear power, coal and natural gas.

    The wholesale price of electricity formed by market supply and demand is mainly determined by the cost of the generator set to provide the last megawatt (natural gas price). Looking at the whole year of 2022, the average daily price of natural gas in Europe has increased by 163% year-on-year, which largely explains the reason for the increase in electricity prices.

    Average monthly electricity wholesale prices

    2) The demand for electricity is mainly due to the surge in electricity demand in Europe in July, and supply and demand affect market electricity prices.

    By the end of July, the summer temperature continued to rise and the number of tourists increased, and the electricity price in the European electricity market rose.

    According to the electricity price data for European residents in July released by HEPI, the average European residential electricity price in July was 24.86 cents/kwh, an increase of 2% month-on-month, and the average electricity price of 27 European countries was 26.34 cents/kwh, an increase of 2% month-on-month.

    Among them, the average residential electricity price in Germany in July was 38.6 cents/kwh, a slight decrease of 2% month-on-month, but the electricity price in Germany is generally at a relatively high level. In general, the average electricity price of residents across Europe has picked up, and the demand for household storage in the medium and long term may increase.

    According to the announcement of the French Ministry of Economy and Energy Transformation, from August 1, 2023, France will have to face a situation of “10% increase in electricity prices”. However, France is still the country with the lowest electricity charges in Europe.

    Ukraine war has led to high energy prices in Europe

    3) The Ukraine war has led to high energy prices in Europe, including electricity prices and gas prices.

    In the short term, the EU has to use emergency intervention to curb soaring electricity costs. In the long run, it will cut the link between gas and electricity prices through structural reforms to ensure that electricity prices are linked to cheap renewable energy. However, considering the specific operation level, if all kinds of power generation are priced separately, the overall implementation cost will be higher, and at the same time, the profit of renewable energy power generation may be compressed, which is not conducive to promoting the development of renewable energy such as solar battery storage systems.

    4)European heat wave

    Red alert and record temperatures. In July, countries around the Mediterranean Sea are experiencing a severe heat wave.

    • lIn France, thermometers reached 40.6°C in Verdun and Tiranges, and 40.7°C in Luc.
    • lRome, Italy broke the high temperature record with 42.9°C. In Sardinia, 45.8°C was measured, and even 46.3°C was measured in Licata, Sicily.
    • lIn Spain, Catalonia hit the 45°C mark for the first time since measurements began, with Figueres at 45.3°C.

    According to the survey of the research institute, in the past July, the high temperature for many consecutive days caused the electricity demand in Spain and Italy to reach a record peak on July 19, and the electricity demand in other EU countries also increased during this period.

    5) Electricity generation in most EU countries

    In France, photovoltaic power generation reached a record high weekly, but photovoltaic power generation and wind power generation fell in most of the EU countries. These factors led to higher electricity market prices in the EU in the third week of July than in the previous week.

    6)Production and competitiveness pressures on firms

    In addition, due to the impact of rising natural gas prices, many European countries have switched to coal and oil-fired power generation, which has further pushed up electricity prices.

    Especially for countries that rely on natural gas imports, the cost of electricity has skyrocketed. This situation of rising electricity prices and tight energy supply has not only brought burdens to the residents of European, but also put enormous pressure on the production and competitiveness of enterprises. Many factories and manufacturers were forced to cut production, and some even had to stop production, which even affected the reduction of jobs in commercial energy storage system industry in Europe.

    Factories were forced to cut production

    2. Sharp increase in the installed capacity of household energy storage products

    European energy storage starts to grow rapidly in 2021. In 2022, due to the yearly increase in energy costs and electricity prices in Europe, the superimposition of the Russian-Ukrainian war and large-scale blackouts overseas, the high cost of electricity for residents and poor stability of power supply will bring about a high increase in household photovoltaics. This will lead to an unexpected explosion in the household energy storage market.

    With Europe’s energy policy + economic dual drive, the household energy storage market exploded, among which Germany is the world’s largest home battery backup system market, accounting for 70% of the European household storage market. In 2021, Germany will add 1.48GWh of household energy storage, a year-on-year increase of 45%, accounting for 34% of the global market share; the cumulative installed capacity is 3.92GWh, a year-on-year increase of 60.6%, accounting for 32% of the global market. In 2021, Germany’s solar storage penetration rate will be 3.6%, ranking first in the world.

    The investment return cycle of the German household savings system is generally 7 to 8 years. If this year’s electricity price surge, tax relief or direct subsidies are considered, it will be further shortened to 2 to 3 years. It is estimated that the number of household energy storage systems installed in Germany will exceed 500,000 in 2022, with a total capacity of about 4.4GWh and a total power of about 2.5GW.

    Europe residential BESS annual scenarios 2022-2026

    Except for Germany, the European market is located in Italy, the United Kingdom, Austria, etc., which are at the forefront of household storage installed capacity. In these countries, driven by electricity prices and policies, the scale of new household storage and installed capacity has grown steadily every year. Relevant data show that Italy’s household storage installed capacity in Europe is second only to Germany. In 2021, Italy’s household storage installed capacity will be 191MWh, a year-on-year increase of 122%. By the end of 2021, the UK’s household storage installed capacity will be 81MWh, a year-on-year increase of 113%.

    As the energy crisis continues to ferment, it is estimated that household energy storage installed capacity in Europe will reach 10/23GWh in 2022/2023, a year-on-year increase of 378%/133% respectively.

    TF Securities estimates that from 2021 to 2025, the installed capacity of global household energy storage will increase from 5.2GWh to 72.6GWh, with a compound growth rate of over 90%. Therefore, the household energy storage industry is highly sought after by the capital market and has become the most popular energy track. You can read top 7 balcony solar products in the world, top 10 household energy storage companies in Germany to know more.

    3. European countries take measures to deal with rising electricity prices

    European governments have taken measures to deal with the problem of rising electricity prices.

    • On March 14, 2023, the European Commission proposed a draft reform of the European electricity market, hoping to solve the concerns of residents, industries, and investors about short-term electricity price fluctuations by optimizing the design of the electricity market, improving products, services, and regulatory systems, thereby promoting more The development of large-scale renewable energy will enhance the competitiveness of Europe’s overall industry.
    • Britain started coal-fired power units again to meet the electricity load. The National Grid of the United Kingdom required Uniper’s Ratcliff coal-fired power plant in Nottinghamshire to start operating mode on June 12 to ensure power supply.
    • The German Federal Network Agency recommends that grid operators reduce the power supply to controllable electrical equipment such as electric vehicle charging piles or heat pumps when the power supply is insufficient. In addition, the agency also proposes to use a flexible electricity price mechanism to guide consumers to optimize the electricity consumption curve wait.
    Measures to deal with rising electricity prices

    Some European countries have also introduced emergency subsidy programs to ease the burden on residents and businesses. At the same time, the government also encourages energy transformation and investment in renewable energy to reduce dependence on traditional energy sources and improve the stability of energy supply.

    4. Conclusion

    Strengthen cooperation to promote the energy development

    Nevertheless, it is an indisputable fact that the performance of the European market still shows that the proportion of new energy power generation in the European electricity market continues to increase.

    Faced with the challenges brought about by the rapid development of the photovoltaic market and the rapid growth of clean energy installed capacity, European governments need to continue to promote the process of energy transformation to solve problems such as power supply and demand balance, grid stability, and reasonable electricity prices.

    In conclusion, the rise of electricity prices in Europe has attracted widespread attention and brought certain challenges to the economies and energy markets of various countries. The government and relevant parties should also strengthen cooperation and take more measures to stabilize electricity prices and promote sustainable development of energy supply.


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