Spot and short-term contracts:

Prices in European electricity markets decreased considerably during October due to a combination of falling gas prices and above-average weather conditions. In fact, the monthly average price in some electricity markets ended up being even lower than in the same month of the previous year. In Spain, for example, the gas cap mechanism had no effect during the last days of October, a first since its implementation back in June. In addition to falling gas prices, CCGTs activity also fell due to increased wind power production and France having slightly improved its nuclear power generation. Thus, the average daily market price (OMIE) in October was 127.21 €/MWh, 9.8% lower than in September 2022. Moreover, this price was 16.7% lower than in Germany and 28.9% lower than in France.

As a result of the above, October has seen the lowest electricity bill charges since August 2021, when the energy crisis began. The average bill for this month was €85.63, compared to €110.55 in September.

In gross terms, power demand in October totalled 19.5 TWh, making it the month with the lowest consumption since Red Eléctrica first started publishing data of national demand. Once again, at a peninsular level, the downward trend in demand – which was also observed in September – was the result of conservative consumption measures and mild temperatures. In the first ten months of 2022, demand was 3% lower than in the same period of the previous year.

On the generation side, wind power generation in October totalled 5.1 TWh and accounted for 23.1% of the production mix, an increase of 5% compared to September 2022. Meanwhile, solar power output, with almost 2 TWh recorded in October, decreased by 2% compared to last month, reaching a share of 9% of the total mix. Hydro generation also fell by 2% compared to the previous month although by c. 25% compared to October 2021 due to rather low rainfall levels. Once again, CCGTs were the predominant production technology, representing 33% of the mix (the same percentage as the previous month).

61% of generation was free of CO2 equivalent emissions, a figure driven by renewable production, which maintained the level from the previous month but increased by 6.8% compared to the same month in 2021.

Regarding gas prices in Spain (MIBGAS), and in line with the trend followed by other European markets, a drastic fall was observed during the second half of the month of October, reaching values below the 30 €/MWh mark. The MIBGas spot contract closed the month at 56 €/MWh, resulting in a monthly average of 64.8 €/MWh. Month-on-month decreases in European gas prices ranged between 10% in the MIBEL market and 65% in the Nord Pool market. The fall of gas prices (MIBGAS) below 40 €/MWh at the end of October resulted in the gas price cap mechanism not being applied as some days resulted in negative values (to be compensated).

Meanwhile, CO2 prices remained at an average level of around 70 €/Tn. However, while the first days of September showed the highest prices, in October it was the last week of the month, with values above the 80 €/Tn mark.

Medium- and long-term contracts:

OMIP Cal2023 contract price hovered around the 200 €/MWh mark during October, rising slightly at the end of the month, and closing at 212 €/MWh, 7% higher than a month ago. The resulting monthly average value was more or less in line with that seen last September. Nevertheless, if we look at the detail of quarterly contracts, we can observe a change of trend for the second half of next year 2023 (Q3 & Q4). Until mid-September, prices for the four quarterly contracts were very much in line. However, Q3 and Q4 started to follow an upward trend that has been maintained and even increased up till today. While Q1 and Q2 2023 have fallen from 197 €/MWh on average in September to 165 €/MWh and 184 €/MWh, respectively, in October, Q3 and Q4 have risen from an average value of 215 €/MWh in September to 230 €/MWh in October.

This is because the outlook for Europe’s gas supply does not look very promising in the longer run. As of today, European gas reserves are almost full, but they will be able to last one winter at the most. Thus, for the second half of 2023, if Europe does not find some other sources of gas supply or some other alternative means of production (considering the forecasts of rising coal prices and that both NordStream pipelines are not being used), a difficult winter is expected, with energy prices that will set record highs again.

Following the trend seen on the spot front, the MIBGas price for Cal2023 also decreased, and closed the month at 108 €/MWh. However, this price does not seem to reflect the current uncertainty surrounding winter 2023-2024. Although there has been a lot of renewable power production this month and gas reserves are full now, if the same storage levels are to be maintained for next winter so that demand is covered and prices are kept at their current levels, Europe must urgently seek some solutions.

Regarding CO2 emissions, forecasts for fossil-fuelled generation emissions are above their 2021 levels and growing. The 2022 picture among major CO2 emitters is mixed: emissions are forecasted to decrease in China (-0.9%) and the EU (-0.8%) and increase in the US (+1.5%) and India (+6%), with a +1.7% increase in the rest of the world combined. Therefore, reaching zero CO2 emissions by 2050 would now require a decrease of approximately 1.4 GtCO2 per year, highlighting the magnitude of actions required.