EU Faces Worsened Energy Crisis On Soaring Demand

European power prices have surged to fresh records on Thursday as recurrent hot weather waves are contributing to limit energy supplies and wildfires rage across France. Wildfires have been raging in the country, leading President Emmanuel Macron to enlist help from across Europe to join 10,000 French firefighters to battle the blazes.

The price gains do reflect a tight market for natural gas, traditionally used to operate power plants, as Russia cuts supplies just as EU member states strive to refill stockpiles for the coming winter. There is a drop in nuclear-reactor output, as well as low wind and hydro generation, these factors have worsened the pressure of the crisis, raising several calls from governments to reduce power consumption, and in turn, reduce hot demand levels.

France is in a very bad situation, as more than half of its nuclear fleet is offline for maintenance. France, one day, was exporting power, but this year it has become a key importer, leading neighboring countries to burn more gas to keep the lights on.

If Russia cuts off the natural gas and there might not be enough gas for the whole demand, then there would be rationing. A bigger crisis can be avoided, but of course it requires a lot of preparatory work that Europeans are busy doing now.

Benchmark German power for next year rose as much as 6.6% to a record 455 Euros a megawatt-hour on the European Energy Exchange AG. The French contract was up as much as 7.8%, rising to 622 euros a megawatt-hour. That’s about $1,100 for the equivalent energy of a barrel of oil.

Heat waves this summer have intensified demand while adding to supply disruptions, with key waterways, which are necessary to generate hydropower, cool nuclear plants and ship energy commodities, drying up.

Historically-low nuclear power output and low hydro reservoirs across Europe are leaving a shortfall in supply that can only be met with dispatchable sources like coal and natural gas. This adds to the resilience of gas demand at a time of dwindling supply from Russia.

The tight power supplies led the UK to issue a warning about a narrow margin between supply and demand on Thursday evening. While National Grid ESO, the country’s grid operator, said there will be sufficient generation, it’s another sign of the difficulties faced by Europe’s electricity system this year.