Europe might be facing another expensive winter. Two factors point to that risk. EDF’s French reactors are again under investigation, and gas storage levels are down. Substantial nuclear outages last winter had a dramatic impact on power prices. EDF has assured the market its reactors will be back for the winter, but the market is less certain. If gas storage also doesn’t manage to refill in time, the compound effect on power prices could be greater than last year.
2017 year-to-date gas storage levels and average gas storage levels
Source: Bloomberg Terminal, Bloomberg New Energy Finance
Winter 2016/17 saw power prices across central-western Europe rise because of prolonged nuclear outages in France. Nuclear shutdowns, which lasted into January, got as high as 28GW (45%) on average in October. This was the result of the French nuclear energy regulator launching a widespread investigation into the safety of EDF’s reactors.
Concerns about a possible repeat scenario have emerged after the regulator announced renewed investigations in mid-August. EDF assured the market that there is no risk of prolonged closures over the winter. Still, as Engie’s Belgian experience shows, these types of investigations don’t necessarily run to schedule. French power contracts for delivery over October-December 2017 rose by 13-17% since early August, yet remain well below last year’s highs.
Power prices also face risk from lower-than-normal availability of seasonal gas capacity. Firstly, the Netherlands is enforcing further production cuts at the Groningen gas field. This will reduce Dutch winter gas production.
Secondly, the U.K.’s Rough storage facility is no longer – leaving a 33TWh hole in Europe’s storage potential (equivalent to 10% of U.K. winter demand).
Thirdly, even discounting Rough, European gas storage sites have struggled to refill after significant draw-downs last winter. This is due to poor economics at the start of the year, higher maintenance outages from Norwegian fields, and a summer heat wave that bolstered power demand.
Gas storage levels are still expected to recover before winter approaches, but without Rough and with less production from the Groningen field the overall system will still be more susceptible to winter price spikes.