Electricity prices in Germany have surged to a record 936 euros per megawatt-hour, surpassing previous highs amid ongoing energy challenges. Factors like “dark lulls” during autumn and winter are straining electricity supply, prompting reliance on natural gas and coal plants. While consumers with fixed contracts remain protected, industrial users face significant cost fluctuations. The energy crisis is impacting neighboring countries, with Norway and Sweden also experiencing increased prices and exploring measures to stabilize their electricity markets.
Record Electricity Prices in Germany
This week marked a significant milestone in Germany’s energy market as the price for electricity on the spot market soared to an unprecedented level. For a brief period, the cost of one megawatt-hour (MWh) reached a staggering 936 euros, shattering the previous high of 871 euros recorded in late August 2022. This surge is reminiscent of the heightened tension in the energy sector following the Russian invasion of Ukraine.
Current Energy Challenges and Future Implications
While Germany is not facing an immediate risk of widespread power outages, temporary shortages have become a recurring issue. Throughout the year, the daily closing price for electricity typically fluctuated between 0 and 100 euros, interspersed with sharp spikes—such as nearly 500 euros at the end of June and 231 euros in early November. The average price over the last two autumn months hovered around 100 euros.
The recent spike can be attributed to a phenomenon known as a “dark lull,” which is particularly common during Germany’s autumn and winter months. This situation arises when there is minimal wind and insufficient sunlight, often exacerbated by high-pressure weather systems characterized by cloud cover or fog. As Germany aims to derive over 50 percent of its electricity from renewable sources by 2024, these dark lulls could have far-reaching implications for the energy landscape.
Klaus Müller, head of the Federal Network Agency and a former Green politician, attempted to alleviate concerns over the situation. He noted on social media that the high prices indicate a scarcity of electricity, but assured that sufficient generation and imports are available to meet demand. Müller emphasized that the European electricity market is designed to maintain liquidity and mutual security among member countries.
Consumers with dynamic electricity contracts, both private and industrial, are directly impacted by these price fluctuations. However, the majority of private consumers are shielded by fixed-rate contracts that last for a year. For industrial consumers, dynamic contracts can present significant cost challenges.
In contrast, Switzerland enjoys a more stable energy environment, with its storage lakes and nuclear power plants helping to keep prices in check. According to Avenir-Suisse economist Christoph Eisenring, Switzerland’s peak price was recorded at 289 euros per MWh, which, while still high, pales in comparison to Germany’s rates.
To address the challenges posed by these dark lulls, it is expected that natural gas and coal-fired power plants will be activated to fill the gaps in electricity supply. Operators may find it economically viable to increase production in response to soaring prices. However, reports indicate that only about two-thirds of the reserve capacity was operational, leaving questions about why power plant operators did not respond more readily.
Countries such as Poland, Belgium, and Great Britain have established capacity markets that incentivize energy suppliers to maintain reserve power plants for emergencies. Germany is also planning to implement similar reserves under the Power Plant Security Act, which proposes replacing coal with gas power plants. However, progress has stalled as the coalition government struggles to garner the necessary support for the legislation.
Adding to the complexity, Germany shut down its last three nuclear power plants in April 2023 and plans to phase out both nuclear energy and coal generation nearly simultaneously—a move not undertaken by any other industrialized nation. Many economists argue that this centralized approach is costly, advocating for a market-driven strategy, such as CO2 trading, instead.
The nuclear phase-out has resulted in a rise in electricity imports, with Germany importing slightly more electricity than it exported for the first time in 2023. The sustainability of this trend remains uncertain, as countries will increasingly require greater electricity supplies for electrification in transportation, heating, and industrial sectors.
The repercussions of Germany’s energy turmoil have resonated across Northern Europe, causing electricity prices to surge. In Norway, traditionally known for its affordable electricity, prices have reached a 15-year high, despite abundant water reservoirs and normal wind conditions.
In Southern Norway, electricity prices soared to twenty times the average on a recent Thursday, prompting Energy Minister Terje Aasland to express frustration over the situation. The Norwegian government is considering cutting two power lines to Denmark to prevent future price shocks—an issue they plan to address in the upcoming election campaign. As Norway’s contracts with Denmark run until 2026, the Center Party aims to renegotiate connections with both Great Britain and Germany.
However, whether these measures will yield lower electricity prices remains questionable. According to simulations conducted by Volue, disconnecting from Denmark could result in only a 5 percent decrease in Norwegian electricity prices by 2025 and a mere 1 percent reduction over the next five years, as reported by the business newspaper “E24.”
Norway generates 90 percent of its electricity from hydropower, supplemented by wind energy. In typical years, production exceeds domestic demand, allowing for high-priced exports. The interconnectedness with the European electricity grid offers security during droughts or wind lulls when Norway must import power. However, the European market model poses challenges, as price hikes in Germany for gas and coal can ripple back to Norway, complicating its pricing dynamics.
Sweden is also feeling the impact of inflated electricity prices, with Energy Minister Ebba Busch advocating for the swift development of new nuclear power plants. The center-right government recently announced plans to build small modular nuclear facilities with the goal of doubling electricity production by 2045.