Heatwave boosts power as cooling demand surges

Friday 15th July 2022

Power and gas markets remain very bullish, driven by fears over reduced Russian gas flows. There is some hope that these flows will increase once maintenance on the Russia – Germany Nord Stream 1 pipeline has been completed (due in a week), but this has to be considered in the wider context of the Ukraine conflict, so uncertainty remains. Other energy indices are also rising, such as coal, with Russian exports restricted, Australian mines flooded, and European demand increasing as coal-fired generation is lined up for the coming winter.

Short-term markets are currently affected by the pan-European heatwave, with domestic cooling cranked up to counter the extreme temperatures. A return to seasonal norms in the UK after the Monday / Tuesday peak should hopefully correct short-term, particularly if wind speeds pick up. A parallel issue to the extreme heat is a lack of rainfall, meaning continental hydro-electric generation remains compromised by low lake levels.

There is however some downward pressure on prices – we have seen the carbon market ease on recessionary fears, and oil has dropped 15% in a month for similar reasons. We are yet to experience destruction across industry, but this seems inevitable at the current high gas and power unit rates. Should consumption fall, so prices may well follow.