S&P Global Ratings raised its base-case assumptions for power prices by up to 10% in five of Europe's main markets over 2021-2023 from its January 2021 assumptions.
More supportive commodity prices and accelerated anticipated closures of conventional generation plants (notably nuclear and coal) in the next three years as part of the stringent decarbonization energy policies across Europe are behind this. At the same time, the pace of commissioning of renewables projects and interconnections will not be sufficient to offset the loss of conventional capacity. This will tighten the supply-demand balance over the next three years, S&P Global Ratings said in a report released today.
"We now see power prices recovering to 2019 levels in 2021, as they benefit from the rise in commodity prices seen since the beginning of the year," said S&P Global Ratings credit analyst Massimo Schiavo in the report, entitled "The Energy Transition And What It Means For European Power Prices And Producers: September 2021 Update."
"A recovery in power prices in 2022 and 2023, to well above 2019 levels in almost all European main markets, should underpin earnings for merchant power generators that provide baseload power, such as nuclear or hydro," Mr. Schiavo added. We expect European TTF gas prices to remain volatile because of the continent's declining production, more uncertain volumes of inflow from Russia, volatile carbon prices, massive storage capacity, well-developed gas infrastructure, and location, making it a natural market of last resort for global liquefied natural gas flows, which are fundamentally exposed to global gas industry developments.
More importantly, solar and wind power will only gradually fill the gap, which implies tightening supply at least in 2022-2023. We also see ongoing hurdles to deploy and connect these new projects. This supports our assumption of sustainably high power prices.
