European power prices will only partly recover in 2021, given still relatively low commodity prices and continued subdued demand, S&P Global said in a report published today:
"The Energy Transition And What It Means For European Power Prices And Producers: January 2021 Update."
For 2022-2023, we think prices will increase to or above 2019 levels owing to stronger demand and more closures of baseload capacity on the back of generally higher commodity prices.
Power prices in 2020 dropped more than 20% in response to a 4%-5% drop in demand induced by two waves of lockdowns, a drop in commodity prices, and a continuously increasing supply of renewable energy.
"We expect our rated European power generators to remain resilient through 2023 because they are almost fully hedged this year, after which they will benefit from higher, supportive prices," said S&P Global Ratings credit analyst Massimo Schiavo.
Last year, these companies proved fairly resilient to power price drops thanks to significant price hedges and an increasingly long-term contracted generation mix.
After 2023, we believe the acceleration of planned closures of nuclear and coal capacity will keep power prices relatively high.
The penetration of renewables will grow, underpinned by government pledges to put their economies on a net zero carbon path by 2050 and dedicate more funds to the energy transition.
"Over the next decade, renewables and gas and carbon prices will assume a greater role in power price formation over the next decade," Mr. Schiavo said.
In this semiannual report, S&P Global Ratings provides its credit insights for Europe's key utilities and power markets--Germany, France, the U.K., Italy, Spain, and the Nordics--supported by the market and price forecasts of S&P Global Platts Analytics, a part of S&P Global Platts, which is a separate, individual division of S&P Global, as is S&P Global Ratings.
At S&P Global Platts Analytics, Glenn Rickson, Head of European Power Analysis; Giuliano Bordignon, Senior Power Analyst; and Sabrina Kernbichler, Power Analyst, provided invaluable insights and data for this report.
