European power prices have climbed to a record high, but power generators are missing out on bumper revenue as their sales are mostly locked in at lower prices. At the same time, the governments are intervening to protect consumers, which could discourage longer-term investment required to propel the region’s energy transition plans. Some market participants warned that smaller players with limited capital to hedge could go under.
Benchmark European gas prices have surged about 250% since the start of the year. Theoretically, it should be a boon for power providers with nuclear, wind, solar, and hydro generation. However, most power firms have little opportunity to benefit because they have already hedged their forward sales. Hydro, nuclear and renewable operators forward-sold 100% of their base production in 2021 at much lower prices than the spot market.
The Spanish government bans generators from making windfall profit amid concerns about the impact on consumers. As a result, some power companies’ shares dropped. The shares of Enel, Europe’s biggest utility, dropped more than 6% since Monday, while Iberdrola, Spain’s largest power generator, saw its shares fall over 8%. In the UK, regulator Ofgem set a cap of the amount power suppliers can charge for their standard tariffs at £1,500 ($1,758) a year.
