In the context of a significant increase in energy prices from 2021, understanding and predicting market movements has become a major challenge for electricity and natural gas consuming companies. In addition to the war in Ukraine and geopolitical tensions, the ongoing energy transition is leading to increased price volatility. Let’s explore the mechanisms for setting these prices and the tools to track them in 2024.
Complex pricing mechanisms
Wholesale electricity and natural gas prices in France are determined by transactions at European energy exchanges. Exchanges take place in the form of auctions that reflect the balance between supply and demand at any given moment.
When it comes to electricity, the means of production are pulled into the grid to increase marginal costs, from renewables to nuclear and finally to fossil fuel plants. This mechanism, known as “order of merit”, means that the spot price is set by the last central station needed to satisfy demand at any given time.
Rising gas and CO2 prices increase the costs of gas and coal-fired power stations, leading to higher wholesale electricity prices. This phenomenon is accentuated by the interconnectedness of European markets.
For gas, the operation is similar at the Dutch TTF node, which is the reference. Wholesale price fluctuations reflect fluctuations in world prices as well as the balance between supply and demand, with high volatility in recent years.
Price determinants in 2024
Several key factors will affect wholesale electricity and natural gas prices in 2024. The availability of the French nuclear fleet, which is currently under maintenance, will be decisive. A return to normal is expected by the end of 2023, but any further delay would push up prices.
Winter weather, like every year, will affect the need for household heating and thus gas consumption. A cold winter would push prices up.
The supply of fossil fuels will also be affected by the global geopolitical situation, especially the development of the war in Ukraine and the regional conflict between Israel and Palestine.
European climate policy, with the rise of renewables or the reform of the carbon market, will finally have a direct impact on French wholesale prices.
Track benchmarks
To predict fluctuations in wholesale electricity and natural gas prices in 2024, companies must constantly monitor them reference price indices. In France, the reference is the electricity spot price indices provided by Epex Spot, the leading electricity exchange in Europe. In the same way, the indices published by Powernext make it possible to monitor the wholesale prices of natural gas.
In addition, electricity transmission network operator RTE, as well as gas network operators GRTgaz and Teréga, regularly publish data and forecasts on the balance of supply and demand, which affect prices.
Analytics firms like SirEnergies provide tools to monitor market prices in real-time to optimize companies’ energy costs. Their experts provide essential information to predict future trends.
Take steps to control your costs
In order for companies to cope with fluctuations in electricity and gas prices in 2024, there are several tools to predict and secure their supply under acceptable economic conditions.
A detailed analysis of the energy consumption of its activity is necessary to identify areas of savings through insulation measures, processes or equipment.
Group buying or forward supply contracts smooth out volatility by guaranteeing fixed prices for several years. Flexibility of consumption, focusing on periods when wholesale prices are lowest, also optimizes costs.
Self-consumption through solar panels, demand response during peaks or electricity storage also provide greater autonomy. Finally, diversification of supply sources reduces risks.
Synthetic
In the permanent context of fluctuating energy prices, the ability to anticipate fluctuations and ensure supply is a major strategic issue for French companies.
Continuous monitoring of market benchmarks allows them to better anticipate trends and adapt their strategy, whether through group buying, flexibility or re-evaluating their model.
Recent crises have shown how complex this expectation is, but necessary to strengthen the resilience of organizations. The most reactive will even find opportunities for development there.
(Partner Article)