Summary
The energy market remained volatile throughout July. While average day-ahead electricity prices declined slightly, forward markets moved sharply higher.
Renewed geopolitical tensions around the Strait of Hormuz, limited LNG availability and relatively low European gas storage levels pushed gas prices significantly higher. At the same time, recurring heatwaves continued to influence the electricity market. Higher cooling demand, restrictions on nuclear power generation caused by warm cooling water, lower hydro availability [TM1.1]and low river levels all increased the market's sensitivity to periods of low renewable power production.
Day-ahead electricity prices ease despite increasing volatility
Average day-ahead electricity prices declined slightly during July. The Dutch day-ahead market averaged €105.86/MWh, lower than in June. Especially the average price during peak hours went down by more than € 20 per MWh.
Although monthly averages were lower, they masked considerable volatility throughout the month. Prices started July around €100/MWh, strengthened during the middle of the month and increased sharply during the final week, during which, lower wind generation resulted in more gas- and coal-fired power plants being deployed to meet electricity demand. As a result, weekly average prices rose to around €118–120/MWh.
Renewable generation remained the main driver of price movements. Strong wind and solar output regularly pushed prices lower, particularly during weekends and midday hours. However, when wind generation weakened, higher gas prices increased the cost of thermal generation, resulting in higher electricity prices. Compared to June, there was less need for gas-fired power production, however coal-fired generation increased by over 70%.
Heat and low water levels reduce generation availability
Recurring heatwaves affected both electricity demand and supply. Electricity demand increased during the warmest periods due to higher cooling requirements. At the same time, warm river temperatures restricted nuclear generation, particularly in France, reducing the availability of nuclear electricity, which is normally a stable and relatively low-cost source of power, which also lessened the amount of electricity that was available for export, putting upward pressure on power prices in neighbouring countries.
Low water levels on the Rhine also affected the energy market. Barges were unable to transport as much coal and other raw materials as usual, increasing transport costs. While power producers could largely rely on existing stocks, some industrial companies reduced production because raw materials became harder to transport.
Electricity futures move higher
Electricity futures also increased during July. The Cal-27 contract rose by 13,2%. Higher gas prices remained the primary driver, while repeated heatwaves, French nuclear curtailments and widespread water-related constraints across Europe provided additional support.
Although power prices followed the gas market, the increase remained more limited due to the continued contribution of coal, renewables and nuclear generation.
Geopolitical tensions trigger a sharp rise in gas prices
Gas prices increased significantly during July. The price of gas for delivery in the coming month rose by 33.2%, while the price for delivery in 2027 increased by 20.3%. This shows that the market became much more concerned about gas supplies in both the short and longer term. Price increases for years further ahead remain limited however.
The main reason for this increase was renewed uncertainty surrounding the Strait of Hormuz. As tensions in the region increased once again, concerns grew that LNG shipments could be delayed or disrupted, as has been the case in weeks earlier. Although no major supply disruptions occurred, the uncertainty alone was enough to push gas prices higher, mainly because of the increased risk premium. Transport and insurance costs also increased, adding further upward pressure to the market.
Towards the end of July, diplomatic efforts helped ease some of these concerns, causing prices to stabilise slightly. However, uncertainty remained, leaving the gas market vulnerable to new developments.
European gas storage remains below normal levels
European gas storage facilities continued to fill during July, reaching approximately 57% by the end of the month. Although this was an improvement compared to earlier in the summer, storage levels remained well below the seasonal average of around 70%.
This means Europe still has a considerable amount of gas to store before winter begins. As long as storage levels remain below normal, the market remains more sensitive to disruptions in supply. Any delay in LNG deliveries or unexpected interruption to gas imports can therefore have a greater impact on prices than usual.
For the coming months, the pace at which gas storage facilities continue to fill, together with developments in the Middle East, LNG availability and possible disruption at Norwegian gas facilities, will remain key factors influencing the gas market.
Oil
Oil price increased by 23.6% compared to June. The main driver was renewed geopolitical uncertainty in the Middle East, particularly surrounding the Strait of Hormuz. As concerns about potential disruptions to global oil supplies returned, oil prices moved higher. Towards the end of the month, prices eased slightly as diplomatic developments helped reduce some of the uncertainty. However, oil prices remained above the levels seen at the beginning of July, showing that the market continued to price in geopolitical risks. The price development remain extremely volatile and are very susceptible to announcements surrounding the US-Iran conflict.
Coal
Coal prices increased by 12.9% in July. Higher natural gas prices made coal-fired power plants more competitive, encouraging greater use of coal for electricity generation, increasing demand for coal. At the same time, recurring heatwaves and periods of low wind generation reduced renewable electricity production, meaning conventional power plants were needed more often. The price increase has however, less impact on power price developments due to the limited use of coal-fired powerplants in The Netherlands, Belgium and Germany.
Carbon
Compared with the gas and electricity markets, carbon prices remained relatively stable during July. The price of EU emission allowances increased by 1.4% during the month. The continued use of gas- and coal-fired power plants supported demand for emission allowances. At the same time, weaker industrial activity limited further price increases, resulting in a relatively stable carbon market compared with the stronger movements seen in gas and electricity prices.
Outlook
Looking ahead, the energy market is expected to remain volatile. Market participants will continue to monitor developments in the Middle East, European gas storage levels and weather conditions. Any disruption to LNG supplies or periods of prolonged heat and low wind generation could continue to influence both gas and electricity prices throughout August.