The European Heatwave Did Not Burn the Energy Market

The week of July 22 saw thermometers rise to all-time highs in several European countries. The records were previously broken in late June, but on July 25, the temperature in Paris reached a record high of 42.6°C (108.7°F). Meanwhile, Belgium, Germany, Luxembourg, and the Netherlands also reached new record highs of 41.8°C, 41.5°C, 40.8°C, and 40.7°C, respectively. The UK recorded a record temperature for July of 38.1°C (just 0.4°C below the record of 38.5°C), with trains told to run slowly to prevent rails buckling.

There were worries that the heatwave could disrupt the European power grid and wreak havoc on the European energy markets. After all, just a few weeks ago, the integrated market in Europe saw a level of disruption caused by weather and IT issues never seen before, and France and Germany were forced to shut down a few of their nuclear reactors as the water from the rivers that fill their cooling towers became too hot to use.

Better Than Expected

However, doom and gloom failed to materialize. Prices at the EPEX Day Ahead index did increase slightly compared to previous weeks but was nothing extraordinary. Something similar happened in the Intraday markets, there was a slight jump in a couple of evenings but within expected ranges.

Amani Joas, Intraday Trader at Next Kraftwerke explained that spot and intraday prices were high. But balancing markets remained surprisingly calm, likely because the market learned from June and bought extra power for the Intraday.

The difference between how the market coped the week of July 22 versus what happened during the June heatwave highlights the importance of information and experience in the operation of the market. This is important to consider as new markets (for example, local energy markets) are launched during the energy transition. There will be glitches, but each of them will be an opportunity to learn.

Demand Curves Will Likely Change

Another, more structural reason why the heatwave did not create more issues to the grid is that the areas most affected by the heat wave are in northern parts of Europe, which do not have a large installed base of air conditioning (AC) units. As an example, the Guidehouse office in Berlin does not have AC. My colleagues there had to find other ways to cool down.

If heatwaves continue, we will see a rush of new AC units installed. After all, this is the continent’s second heatwave of 2019 and the third in 2 years. If this happens, the market participants and grid operators will have to adapt to a very different summer electricity demand profile that will require them to implement new grid management solutions, like flexibility and non-wires alternatives.