Energy Market Management

This has been a difficult winter for European electricity. The rise in wholesale prices has been sharp and widespread—it is not restricted to a few hours, or to one corner of the Continent, or to days when something unusual happens. The weighted average price across the EU exceeded 100 €/MWh in both November and December, returning to levels not seen since early 2023. January 2025 does not look much better so far. The primary driver of European electricity prices on a day-to-day basis is the volatility of wind. But wind exerts this influence because of broader shifts in the system. Nuclear remains far below its peak, and coal has declined sharply. Output from hydro is low, in some places acutely so. Solar delivers very little during the winter, and even less on cloudy and rainy days. In other words, the European system is short. It is very short when the wind does not blow, it is mostly short in the evening no matter what, and it is mildly short during other times (it is rare to see negative or zero prices outside a few key countries). We then use gas to close the gap, triggering a vicious cycle between tight gas markets and tight electricity markets. The result is high electricity prices during most hours and extreme prices during some hours. This is hardly a stable equilibrium. We talk a lot about flexibility—and rightly so. But flexibility is often defined in short intervals—a few hours or maybe a few days, leading us to emphasize solutions like storage or demand response. We rarely test scenarios based on the data in this chart, and we rarely model the interactions among systems that are making decisions quite independently from one another. Extreme prices are distress signals. They are telling us capacity is missing. And they are telling us that whatever governance system we are using to oversee this complex, EU-wide system is not enough. The path to lower prices lies not just with deploying more renewables and more storage, but also in solving this complex governance puzzle. It is the only way to guarantee resource adequacy without resorting to a steady stream of exorbitant prices.

⚡ Ten days. That’s all it took for Germany’s 15-minute market to expose our next big energy problem. When Germany switched from hourly to 15-minute spot market prices, it wasn’t just a technical change. It was like turning up the sensitivity dial on the entire energy system. Suddenly, the grid started telling us the truth… every 15 minutes. And it’s fascinating what that truth looks like. 1️⃣ Prices now move with the weather Every passing cloud, every burst of sunshine, you can see it reflected in the market. Prices spike, dip, recover, all within minutes. It’s messy, yes. But it’s also honest. 2️⃣ Flexibility has become the real star In a world that moves every 15 minutes, flexibility isn’t a nice-to-have. It’s everything. Batteries, smart EV charging, flexible industrial loads… These aren’t “future tech” anymore. They are what keep the grid balanced in real time. 3️⃣ Renewables are setting the rhythm Midday prices drop when solar floods the grid. Evenings see the classic ramp-up as the sun fades but demand stays high. The market is finally dancing to the rhythm of the sun and wind. 4️⃣ The Flexibility Gap is showing There are a few moments, very few (marked in golden circles), when renewables actually exceed demand. Those moments whisper: “We could have run on 100% renewables… if only we had more flexibility.” Storage, smart demand, and hydrogen can turn those whispers into everyday reality. 5️⃣ Efficiency is quietly improving More granular trading means fewer mismatches, less waste, and better alignment between generation and demand. The system is learning to breathe more naturally, in smaller, faster rhythms. 6️⃣ It’s not just about power anymore. It’s about timing. In a 15-minute market, the question isn’t “how much energy do we have?” It’s “when do we have it?” That’s a mindset shift for utilities, for industry, and for all of us watching this transition unfold. 💭 My takeaway Germany’s 15-minute market is teaching us that the energy transition doesn’t just need clean power. It needs quick reactions. We’ve built renewables. Now we need to build flexibility. Because in this new world… every 15 minutes counts. ⚡

The economics of grid storage have flipped in the last few years – batteries are now cheaper than gas. What's remarkable is how quickly this transition has happened. In 2021, electricity from batteries was significantly more expensive than electricity from gas turbines across all major markets. Today, the opposite is true in most markets. At the end of last year, the cost of electricity from a four-hour battery had fallen to around $78/MWh. Gas-fired power is still typically around $100/MWh in many markets, particularly those reliant on LNG. What's driving this? ✅ Battery costs have fallen rapidly, particularly for lithium iron phosphate (LFP) chemistries ✅ Gas-fired generation remains tied to fuel prices, especially in LNG-importing markets ✅ Cheap solar and wind are lowering charging costs for batteries even further And why does this matter? It matters because of the role batteries are increasingly playing in the system. Electricity prices are typically set by the most expensive ("marginal") generator needed to meet demand. This is often gas. Batteries are increasingly undercutting gas and setting the price at a lower level. As this continues, electricity prices will increasingly be set by capital-intensive technologies, not fuel costs.

Rising EU gas prices drive European power prices: Europe’s “merit order” ranks power plants by their marginal (variable) costs for producing a single MWh of #electricity. To economically optimize the available electricity supply, the cheapest power suppliers produce first (#solar, #wind and hydro with marginal production costs of close to zero), while the most expensive power plants (#gas or coal) produce the last MWh of electricity to clear the market (see upper chart). Thereby, the most expensive power plant (gas) sets the electricity price for all power plants involved, even for those with zero marginal production costs (solar, wind and hydro). This is called “uniform pricing” because all power plants receive the same price for their supplied electricity. This merit order principle explains why EU gas prices set electricity prices and why both prices are highly correlated in Europe. As EU gas prices (TTF) have hit EUR 58/MWh (highest level since Jan 2023), German wholesale electricity prices have also started to rise and have mostly stayed above EUR 100/MWh in 2025, which is still significantly below the 2022 peaks after the Ukraine war started (see lower chart). Which companies could benefit? RWE, which captures Europe’s rising electricity prices in two ways: first, about half of its generated solar, wind & hydro power (41 TWh) is sold in Europe at zero marginal costs and second, its flexible gas power generation (42 TWh in 2023) captures the price spikes, when gas plants have to step-in during the so-called “Dunkelflaute” (when the wind does not blow and the sun does not shine) #energy

💸 Why flexibility and storage will drive down European Energy prices: Understanding marginal pricing in energy markets. In the world of energy markets, marginal pricing is a critical concept that determines the cost of electricity. It works by setting the price based on the cost of the last unit of electricity produced to meet demand. This often means that the price is set by the most expensive source of energy, which is typically fossil fuels. As noted in the JRC134300 publication, "marginal pricing ensures that the price reflects the cost of the last unit needed to meet demand" . 🔍 The Paradox of Renewable Curtailment Despite their near-zero marginal cost, renewable energy sources like wind and solar are being curtailed in many countries. This happens when the supply of renewable energy exceeds demand or when grid constraints prevent its integration. As a result, we miss out on the opportunity to utilize clean energy, and the marginal price remains influenced by fossil fuels. The publication highlights that "curtailment of renewables occurs even though they have a near-zero marginal cost" . According to Figure 14 in this Joint Research Center report (https://lnkd.in/dPgZwGwd) , by 2030, fossil fuels will represent a small fraction of the total generation mix. However, they will still often be the price-setting technology, thereby driving energy prices in Europe. This underscores the need for strategic interventions to mitigate this impact. ⚡ The Power of Flexibility Introducing flexibility into the energy system can change this dynamic. By leveraging energy storage and demand response, we can store excess renewable energy and use it when needed, reducing the reliance on fossil fuels to set marginal prices. This not only optimizes the use of renewables but also stabilizes energy prices. The report suggests that "flexibility can drastically reduce the time marginal price is set by fossil sources" . It's time to promote flexibility and storage solutions even more aggressively. By doing so, we can harness the full potential of renewable energy, reduce our carbon footprint, and create a more resilient energy system. #MarginalPricing #BESS #Flexibility #EnergyStorage #Curtailment #CleanIndustrialDeal

Lower power prices, higher gas demand? Rethinking the #Italian #energy #decree 🔹 In our previous analysis (link in the first comment), we showed how the proposed measures could materially reduce Italian power prices, particularly under the ETS reimbursement scenario. 🔹 We have now extended the analysis using a joint #power #gas #modelling framework, capturing not only the direct impact on electricity markets, but also the feedback on gas demand and pricing. 🔹 At first glance, the measures appear supportive for power prices – but the full picture is more complex. 🔹 Our results show that lower power prices would lead to higher gas-fired generation and reduced imports, increasing Italian gas demand by up to 7% in our scenarios. 🔹 This comes at a time when gas markets have tightened materially, amid ongoing geopolitical tensions in the Middle East, adding to concerns around supply and price volatility. 🔹 As a result, the increase in gas demand creates upward pressure on PSV prices, partially offsetting the initial benefit on power prices – a feedback effect that is not captured when gas prices are treated as exogenous. 🔹 Once this feedback is taken into account, the net benefit for end-users appears very limited – up to around €600 million in 2027, equivalent to less than €2/MWh on electricity consumption. 🔹 At the same time, the measures introduce material redistribution effects within the power system: we estimate a ~30% reduction in renewable capture prices and around a 10% compression in average daily spreads, implying lower revenues for solar, wind and battery storage assets. 🔹 This raises a broader strategic question: are these measures easing prices – or increasing exposure to gas in an already tight market environment while redistributing value across the system? 📊 The full ICIS analysis – including joint power–gas modelling, cross-border dynamics, and market pricing across power, gas and carbon – is available to subscribers via our platforms. Notably, we also modelled the ‘gas transport only’ scenario, where results point to similar (if more contained) dynamics, showing that even more limited interventions may still lead to non-intuitive system-wide outcomes. #DLbollette #PUN #PSV #ETS #integratedmodelling #ICIS