Order Adven’s Energy Outlook report
The energy market is changing rapidly and becoming more and more complex. At Adven, we are working with these questions every day.
As the leading partner in the energy transition, we want to help you navigate in this fast-moving environment.
The market is currently very volatile. We talk about an energy crisis that at a first glance seems to be abating, but the underlying causes are far from resolved.
Therefore, once every quarter, we consolidate a report – the Energy Outlook – with some of the main factors impacting the energy market right now as we see it. In the Outlook we discuss, for example, the energy crisis in more detail, take a glance on Nordic power and how the fuel market is developing in terms of fuel source and prices. In this constantly changing environment we also suggest some hedging strategies to limit the risks in financial assets.
Energy Outlook topics
- Executive summary
- Changing theme
- Energy markets: Nordic Power, natural gas, biomass, coal, carbon etc.
- Hedging strategies
- Market prices
- Price forecast Nordic Power
Summary of the newest Energy Outlook #4 published in November 2024
The risk of sudden energy price spikes is lower this winter than earlier during the energy crisis. European gas storages are full and lackluster economic activity dampens demand. However, geopolitical risks are elevating fuel prices, that have increased from a low in February. Electricity prices are softened by the weak European economy, particularly in the Nordics where reduced demand coincides with a large surplus of power generation. For many power producers, the coming years will result in low margins and investments in new power generation might be postponed.
The heating season has just begun, though delayed by mild temperatures. Purchasing biomass has been easier than last year. The low profit margins in power generation are reducing fuel demand of combined heating power plants. Lagging biomass indices for Q2 2024 confirm stabilizing prices in the Nordics and somewhat softening prices in Sweden this summer. Gas, coal and emission prices have increased slightly since February.
Taxes and grid fees are often overlooked cost components of an electricity bill, with significant implications for households, industries and energy producers. High household electricity expenses can lead to public discontent, influence policy making, and ultimately shape the operational landscape for market participants.
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A new issue of the Energy Outlook is published quarterly. The order is not subscription-based, you need to order each issue separately. You can also order already published issues retrospectively, mention the number in the order form.
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Summary of Energy Outlook #3 published in September 2024
The European energy supply situation is improving, boding well for the upcoming winter. However, fuel prices are still elevated after having bounced back from a low in February. While fuel prices are high, power prices have plummeted on the back of a weak European economy. For many power producers the next few years might be difficult as profit margins are at times zero or negative.
Purchasers of biomass note that more volumes are to be had now compared to last year. Lagging biomass indices for Q2 2024 are indeed confirming a drop in prices, and preliminary reports tell of prices softening further this summer. Gas, coal and emission prices have increased in the first half of this year albeit still below the levels at the beginning of 2023.
Electrification has not yet significantly increased European power demand. Instead, the recession and elevated energy prices have led to a 6 percent drop in consumption since 2021. While power consumption is expected to grow only modestly in 2024, the large changes are currently on the supply side. The share of solar and wind power generation will surpass fossil power generation in EU’s electricity mix. This is adding to grid costs, foreseen to increase further as European power demand is expected to accelerate as the recession subsides.
Summary of Energy Outlook #2 published in May 2024
The energy supply situation has improved. An overall mild winter, well-filled gas storages, more available nuclear generation and lower coal prices are translating into lower power prices. But while fuel prices are softening, power prices are plummeting. For many power producers the next few years might be difficult, as profit margins are at times zero or negative.
Purchasers of biomass also note that there is more volume available now in comparison to last year. Even though this is not yet seen in lagging price indices, it is likely that the recent price surge is coming to an end.
This summer a new European Parliament will be elected. Forecasts are projecting a shift from the green left towards the conservative right. This may reduce the pace of new reforms but should not impact recent ones, for example the recent reforms of the EU Emission Trading System (EU ETS). Today EU ETS covers approximately 40 percent of the Union’s emissions. Since January, maritime transport is also included. With the addition of ETS2 in 2027, about 75 percent of total emissions will be traded. Traded emission prices will soon show up in many more value chains. For example, the cost of emissions is already adding between € 25 to 60/MWh to the European power price.
Summary of Energy Outlook #1 published in February 2024
The winter is coming to an end. During the last few months, record high global temperatures combined with an economic slowdown has pulled energy prices down substantially. But despite the recent plunge, current price levels in Europe are still above historical averages and there is still a significant risk premium on gas. The loss of Russian supply has exposed Europe’s physical short gas position to global markets while tightening global gas supply overall. This is fundamentally increasing the unpredictability of energy in both price and volume, elevating risks in the whole energy system.
While energy market volatility is high, the political risks are also very much present. The combination of international and national policy changes is creating a veritable mosaic, depending on how different regions approach the need to increase energy security, reduce consumers’ costs and achieve climate targets.
Summary of Energy Outlook #5 published in November 2023
The heating season is at our doorstep. Following a summer with slower market movements, gas and coal prices are gradually gaining seasonal momentum. So far this year, energy supply fears are significant lower compared to a year ago: cargoes of liquified natural gas have been rather easy to source on global markets and European gas storages are full, much thanks to a mild previous winter.
But despite the recent drop in prices, current price levels are still above historical averages and the risk premium on gas is significant. The loss of Russian supply has exposed Europe’s physical short gas position to global markets while tightening global gas supply overall. This is fundamentally increasing the unpredictability of energy in both price and volume, elevating risks in the whole energy system. Another important factor is the high price of emission allowances. Supported by recent political reforms, the price has not dropped as much as in other energy commodities.
While Europe is struggling to replace lost energy imports from Russia, new trade flows are emerging, and substitute fuels are pulled into by supply squeeze. This is a stress test of volume and price risk management for all participants, with gas, coal, biomass, emissions all being in for the ride.
Summary of Energy Outlook #4 published in September 2023
During this summer, fuel and power prices have leveled out far below last year’s peaks. But despite the price-drop, current levels are still significantly above historical averages.
The two main reasons for this are high costs of emission allowances following recent years’ reforms, and significant fuel risk premiums due to the ongoing supply squeeze. Europe’s shift in gas sourcing is significant. Pipeline gas flows to Europe is expected to be 62 percent lower compared to 2019 while LNG imports could be 119 percent higher. This is fundamentally increasing unpredictability of gas in both price and volume, elevating the risks in the whole energy system.
As Europe is struggling to replace lost energy imports from Russia, new trade flows are emerging, and substitute fuels are being pulled into the supply squeeze. This is a stress test of the volume and price risk management for all participants, with gas, coal, biomass, carbon prices all being in for the ride.
Summary of Energy Outlook #3 published in May 2023
The winter was a more manageable challenge than was feared last autumn. Being the second mildest winter in Europe on record, energy consumption plummeted.
And so did prices, but current energy price levels are still much elevated compared to historical averages. On top of this, the record-breaking mild weather is underlying an even longer-lasting crisis than the energy one. Emission pricing has a strong momentum which is increasing the cost of fossil fuels. And with the recent reforms, even more participants are starting to acknowledge this fact.
As Europe is struggling to replace lost energy imports from Russia, new trade flows are emerging, and substitute fuels are being pulled into the supply squeeze. This is a stress test of volume and price risk management for the whole energy complex, with gas, coal, biomass, carbon prices all being more or less caught in the storm.
Summary of Energy Outlook #2 published in February 2023
The second winter of the energy crisis is more than half-way through. Even though the crisis at first glance seems to be abating, the underlying causes are far from resolved.
Relations with Russia have not improved but quite the opposite, as Europe has increased its support to Ukraine. All the while, the political risks continue to be significant with several political interventions in place and several more likely to be introduced. In December, the details of the Fit for 55 reform packages were decided upon by the EU, expanding and tightening the emission trading system.
Electricity prices have come down significantly since the record price-spike in August. The reason is a combination of mild winter weather and economic slowdown, that is weighing on coal-, gas-, biomass-, and carbon prices. But despite the recent drop, energy prices remain much elevated compared to their historical averages.
The applicable hedging strategies remain very much focused on risk management.