Wholesale electricity prices across Europe are expected to rebound next winter with notable differences by country. In the United Kingdom, Germany, and especially France, the trajectory is being watched closely. Spain is anticipated to see a more moderate pace, though prices are still expected to stay historically high in the near term, according to the latest International Energy Agency (IEA) assessment.
The IEA report on the electricity market, issued this week, highlights a heavy reliance on external energy sources. Europe sourced a substantial share of its gas, oil, and coal from external suppliers in 2020, with Russia supplying about 30% of gas, over 20% of oil, and around 12% of coal. This exposure amplifies concerns about supply security as tensions persist globally.
Currently, the benchmark index that began in 2016 shows prices in several countries at multiples well beyond their early levels, with France and Germany experiencing about tenfold increases to around 1,000 points. Should Russia reduce or halt gas deliveries entirely, the price surge could quicken, raising fears of supply constraints during the winter months.
For the year-end outlook, the report projects France might see prices tripling to about 3,000 points, while Germany could approach 1,750 points. After a potential peak, both markets are expected to ease in 2023, only to rise again in the first half of the year and climb once more in the second half, remaining well above the 2016 baseline and potentially reaching around 1,500 points by mid-year, a level equivalent to roughly fifteen times the starting point of 2016.
In the United Kingdom, the forecast anticipates prices increasing from the current level near 500 to about 1,250 in the fourth quarter, with a subsequent drop to below 750 in the second half of the following year.
Lack of transparency in the gas price cap
Spain presents a notably different path. After peaking in early 2022, prices have declined, dropping to around 500 points in the summer as a new gas price cap on the Iberian market was introduced in June. This mechanism has drawn scrutiny from IEA analysts who caution that the costs of electricity may not be fully visible because gas-fueled plants receive compensation, which clouds true operating costs.
Without an official update, the IEA expects prices to rise again toward the end of 2022 and into 2023, ending the year at roughly 700 points. That trajectory would imply a megawatt-hour cost about seven times higher than the 2016 baseline.
Gas and coal face price pressures
The broader price surge in Europe is driven largely by uncertainty over Russian gas supplies, which has pushed prices to historic highs in wholesale markets. In the main European benchmark market, gas traded near $107 per megawatt-hour, a stark contrast to the average levels seen in the 2017-2021 period. Coal, also a critical power generator, rose sharply in the first half of the year, averaging around $281 per tonne, about four times the 2017-2021 reference period.
Looking ahead, the IEA suggests that both gas and coal will remain expensive in the latter half of the year, with gas costs rising about 58% and coal by around 20% relative to the previous period. In 2023, prices are expected to ease somewhat, with a modest decline of about 7% for gas and 18% for coal, though levels will still be elevated compared with historic baselines. Coal and gas continue to be dominant in Europe’s electricity generation mix, accounting for a meaningful share of production in 2021 and shaping pricing dynamics in the EU’s energy market.