European power volatility almost doubles from last year

Significantly larger price spreads have been seen in European spot markets in the first quarter of 2025, with marginal dispatching from thermal units pushing prices up in the absence of renewable supply.

Day-ahead electricity indexes in Europe's five biggest markets showed standard deviations averaging Eur33.47/MWh during the first three months of the year, up 85% from the same period of 2024.

"I think we saw a fundamental shift from last year, where the cost of dispatching in the evening was already high because of the ramping up of pricey coal and gas, while negative hours became more common," a Danish short-term trader said. "Such an effect has only increased this year with even more solar coming into the German power market, making it necessary for thermal units to take a higher premium during the evening ramp to negate the dispatching cost in the mid-peak."

Germany's Epex daily index showed a deviation of Eur37.25/MWh, ranging between 95 euro cent/MWh and a first-quarter high of Eur231.36/MWh for Jan. 20 delivery, mirroring trends in neighboring markets.

That session saw German hourly prices rise to a record high of Eur583.40/MWh for the 1700-1800 CET slot, driven by thermal generation -- from lignite-, gas- and hard-coal-fired units combined -- reaching 36.5 GW, nearly 50% higher than the average output in January.

The limited wind power that day contributed to heavy electricity demand of 70 GW, exceeding the monthly average by more than 11 GW, supported by seasonal temperatures some 2.2 C below norms.

"[Hourly prices] will go higher if Germany keeps shutting down plants," the same trader said. "Market dispatching costs have increased significantly and will continue to increase exponentially."

In the UK, where the standard deviation soared 147% year over year, Platts assessed block 5 for Jan. 22 at GBP598.50/MWh, compared with a GBP142/MWh average across January-March.

Negative prices were as low as minus Eur26.07/MWh in Germany and minus Eur33/MWh in the Netherlands for March 30 at 1400 local time. Germany alone recorded 44 negative hourly prices during the first quarter, up from 32 throughout the same period of last year.

"While the overall production impact from solar power may be limited through the winter season, output does nonetheless present a growing downward pressure on a few midday hours, particularly through March. Installed solar capacity is expected to grow by a further 16.9 GW this year, which considering both increased production and self-consumption will further influence the shape of thermal dispatch as it is squeezed out of those midday hours," said Daniel Muir, senior power and renewables analyst at S&P Global Commodity Insights.

According to industry association SolarPower Europe, EU solar installed capacity could exceed 400 GWdc by the end of this year, up from 338 GWdc by the end of 2024.