# Europe's Power Markets Face a New Balancing Act

An episode of [Switched On](https://invisiblenetwork.ai/podcast/1469286286), 14 Oct 2026, 31 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/01a10738-3608-4dec-883c-ae3c00026b36/c8cf3466-503a-44a4-a799-b4e2014bc161/audio.mp3?utm_source=Podcast&in_playlist=6d114f63-833d-4b78-bbf5-ae3c00026b44

Europe’s power mix is changing fast. Ample output from wind, solar and nuclear means that northwest Europe could require significantly less power from fossil fuels this winter than last. At the same time, rising electricity demand from EVs and data centers is shifting market dynamics across Europe, creating new opportunities for technologies like solar and batteries. So how are Europe’s power markets evolving, and what does that mean for prices and investment? On today’s show, Tom Rowlands-Rees is joined by Arhnue Tan from BNEF’s European power team to discuss findings from some of her team’s notes, including “European Power Monthly October 2026: Renewables Retreat,” “European Power Winter Outlook: Cleaner Mix,” and a series of outlooks covering individual power markets across Europe, which we’ve hyperlinked below. Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com Links to research notes from this episode: European Power Monthly October 2026: Renewables Retreat - https://www.bnef.com/insights/40545 European Power Winter Outlook: Cleaner Mix - https://www.bnef.com/insights/40431 Germany Power Market Outlook 2026: Batteries Versus Gas - https://www.bnef.com/insights/40407 Italy Power Market Outlook 2026: Renewables Edge Out Gas - https://www.bnef.com/insights/40373 Nordic Power Markets: Demand Outlook - https://www.bnef.com/insights/39425 France Power Market Outlook 2026: Price High, Supply Ample - https://www.bnef.com/insights/39197 See omnystudio.com/listener for privacy information.

## Transcript

[0:00] Speaker 1: This is Tom Rowlands-Reese, and you're listening to Switched On,
[0:03] Speaker 1: the podcast brought to you by Bloomberg NEF. Europe's power
[0:06] Speaker 1: markets are changing rapidly. Wind and solar are increasingly squeezing
[0:09] Speaker 1: fossil fuels out of the generation mix. And this winter,
[0:12] Speaker 1: Bloomberg NEF expects net load, the portion of demand left
[0:15] Speaker 1: for other sources to meet, to fall 28% in Northwest
[0:18] Speaker 1: Europe and 16% in Southern Europe, compared with last winter.
[0:21] Speaker 1: But that doesn't necessarily mean cheap electricity. Gas often remains
[0:25] Speaker 1: the marginal generator setting wholesale prices, leaving markets exposed to
[0:28] Speaker 1: high fuel costs even as renewables expand. Longer term, more wind,
[0:32] Speaker 1: solar and batteries initially push prices lower before rising demand
[0:36] Speaker 1: from electric vehicles, data centres and electrification begins to tighten
[0:39] Speaker 1: markets again. These dynamics are playing out differently across Europe,
[0:43] Speaker 1: from Germany's increasingly renewable heavy system and Italy's growing opportunity
[0:46] Speaker 1: for solar and batteries to new electricity demand emerging across
[0:50] Speaker 1: the Nordic markets. So, how are Europe's power markets evolving?
[0:53] Speaker 1: And what does that mean for prices, investment, and the
[0:55] Speaker 1: technologies needed to keep the system balanced? On today's show,
[0:59] Speaker 1: I'm joined by a senior associate from BNEF's European Power team,
[1:02] Speaker 1: Anu Tan, and together we discuss findings from some of
[1:04] Speaker 1: her team's notes, including European Power Monthly October 2026, Renewables Retreat,
[1:09] Speaker 1: European Power Winter Outlook Cleaner Mix, and a series of
[1:13] Speaker 1: outlooks covering individual power markets across Europe, which we'll hyperlink
[1:16] Speaker 1: to in the show notes. BNEF clients can find these
[1:19] Speaker 1: and other power market reports by heading to bnefgo on
[1:22] Speaker 1: the Bloomberg terminal or bnef.com. And if you'd like to
[1:24] Speaker 1: learn more about how BNEF approaches strategy research on the
[1:27] Speaker 1: energy transition, including developments in commodity markets, trends across different sectors,
[1:31] Speaker 1: and the cross-cutting technology shaping the future.
[1:32] Speaker 2: You can find more information on bnef.com.
[1:35] Speaker 1: And if you'd like to speak with a member of
[1:36] Speaker 1: our team about becoming a client, email us at sales.bnef
[1:39] Speaker 1: at bloomberg.net. But for now, let's take a closer look
[1:41] Speaker 1: at the outlook for European power markets with Arno. Anu,
[1:54] Speaker 1: welcome to the podcast.
[1:55] Speaker 3: Thank you.
[1:56] Speaker 1: So we are here to talk about the power markets
[1:59] Speaker 1: of Europe, where power is bought and sold across the continent.
[2:03] Speaker 1: I know that sounds silly. I suppose we're talking about
[2:05] Speaker 1: wholesale power markets, right?
[2:06] Speaker 3: Yeah, we're talking about wholesale. So we're not going to
[2:09] Speaker 3: talk about... Your retail electricity prices.
[2:12] Speaker 1: Actually, for people who, you know, we've already lost when
[2:14] Speaker 1: we started speaking about wholesale versus retail. Let's start there
[2:18] Speaker 1: because it is all interconnected in its own way. But
[2:22] Speaker 1: when I say we're talking about wholesale power markets and
[2:24] Speaker 1: not so much retail power markets, what am I talking about?
[2:27] Speaker 3: Well, wholesale power markets are how electricity is traded, right?
[2:32] Speaker 2: Between who?
[2:33] Speaker 3: Between markets, between market participants. For example, generators sell power
[2:39] Speaker 3: to the grid. The grid transports it. That's the wholesale market.
[2:43] Speaker 3: And countries also sell power to each other. So that's
[2:46] Speaker 3: wholesale power markets. Retail power markets is when the electricity
[2:50] Speaker 3: reaches your home and you pay a different price for it.
[2:53] Speaker 1: So in the retail market, it's like your utility... has
[2:58] Speaker 1: bought power in the wholesale power markets and now it's
[3:00] Speaker 1: selling it on to you at.
[3:01] Speaker 2: The price that you've set up.
[3:02] Speaker 3: At the price, exactly.
[3:04] Speaker 2: Got it.
[3:05] Speaker 1: So wholesale power markets do, I suppose, eventually impact retail
[3:09] Speaker 1: power markets. You know, if power is expensive wholesale, then
[3:12] Speaker 1: eventually your utility is going to have to charge you
[3:14] Speaker 1: more for it, or your retailer, to use the correct terminology.
[3:17] Speaker 1: But it doesn't necessarily immediately impact wholesale.
[3:20] Speaker 3: No, it doesn't immediately impact how you use your power
[3:24] Speaker 3: at home. It takes a while, depending on the kind
[3:26] Speaker 3: of tariffs you have for the wholesale power price to
[3:29] Speaker 3: actually reach you and affect your own bill. So they
[3:32] Speaker 3: kind of live together, but in a way separate.
[3:35] Speaker 1: But the wholesale power market does immediately affect you if
[3:39] Speaker 1: you own a generation asset, whether it's a wind farm
[3:42] Speaker 1: or a solar farm.
[3:43] Speaker 3: Or a gas plant.
[3:45] Speaker 2: Or a gas plant.
[3:45] Speaker 1: So in those cases, if electricity is expensive, then you
[3:48] Speaker 1: get more money. If electricity is cheap, then you don't.
[3:51] Speaker 2: Get as much money, right? Correct. Yeah. All right. So
[3:54] Speaker 2: we've established what we're talking about.
[3:56] Speaker 1: So your team, the EU Power team, published a report
[4:00] Speaker 1: that you were a co-author of on the winter outlook
[4:04] Speaker 1: for the EU power markets. I mean, first, before we
[4:07] Speaker 1: even get into like, what are the findings of this? Like,
[4:09] Speaker 1: why would we do such a thing? I mean, why
[4:11] Speaker 1: is it a sort of a relevant question? You know,
[4:13] Speaker 1: what is the outlook for this winter?
[4:15] Speaker 3: I suppose like in Europe, wintertime is normally the time
[4:19] Speaker 3: where the whole continent uses the most amount of electricity
[4:23] Speaker 3: in a year. So it kind of becomes an important
[4:27] Speaker 3: time to figure out whether the market is going to be,
[4:31] Speaker 3: you know, tight or loose, to put it simply. So yeah,
[4:34] Speaker 3: wintertime tends to be critical points for not just generators,
[4:39] Speaker 3: but also for like grid operators. So yeah, that's why
[4:41] Speaker 3: we do the winter power outlook. We also have a
[4:43] Speaker 3: summer power outlook, but winter is for now a bit
[4:46] Speaker 3: more critical than the summer.
[4:48] Speaker 1: So, I mean, I don't want to make it too
[4:49] Speaker 1: dramatic and people listening start panicking. But like, it's not quite,
[4:54] Speaker 1: you know, are we going to make it through this
[4:56] Speaker 1: winter intact?
[4:57] Speaker 3: Yeah, we always make it through winter.
[4:59] Speaker 1: We always make it through winter. But it's more like,
[5:03] Speaker 1: how bumpy is the road going to be, I suppose.
[5:06] Speaker 1: So then I suppose then, going then straight to, you know,
[5:09] Speaker 1: we published a report. How bumpy do you think the
[5:11] Speaker 1: road is looking for Europe as we go into this winter,
[5:15] Speaker 1: for the power markets of Europe?
[5:17] Speaker 3: Yeah, for the power markets of Europe, this winter is
[5:20] Speaker 3: looking quite good, actually. I mean, despite issues with gas
[5:25] Speaker 3: supply because of the war in Iran, the power system
[5:29] Speaker 3: in itself is looking quite good. Now, this boils down
[5:32] Speaker 3: to a few things, and I'm going to talk about
[5:35] Speaker 3: five markets here specifically. I'm going to talk about Germany, France,
[5:38] Speaker 3: Great Britain, Spain and Italy. So all of these markets combined...
[5:43] Speaker 3: This year, this coming winter, I'm likely going to see
[5:46] Speaker 3: less need for fossil fuel power. And that's always a
[5:50] Speaker 3: good thing because that means you're going to be using
[5:52] Speaker 3: more clean power to fuel the system. So because we
[5:55] Speaker 3: have more nuclear, more wind, more solar, that means the
[6:00] Speaker 3: whole system is kind of in a better place this
[6:01] Speaker 3: winter than it was last year.
[6:03] Speaker 1: I just want to qualify what you mean by it
[6:06] Speaker 1: being a good thing to be using less fossil fuels. And,
[6:08] Speaker 1: you know, obviously there's the question of emissions, which, you know,
[6:12] Speaker 1: how much importance people place on that might depend on
[6:15] Speaker 1: the individual. But it's also fossil fuels as generators. They
[6:20] Speaker 1: kind of make everything you mentioned, wind, solar, nuclear. It's
[6:23] Speaker 1: kind of like the cheap stuff, right? On an operating basis,
[6:26] Speaker 1: wind and solar is effectively free and nuclear is not
[6:28] Speaker 1: far off. So it's like the stuff that costs money
[6:31] Speaker 1: on an operating basis is fossil fuels. And so the
[6:34] Speaker 1: less of those you can consume, the cheaper it is,
[6:37] Speaker 1: which I don't think anyone's going to differ on how
[6:41] Speaker 1: important something is cheap or expensive. That's something I think
[6:43] Speaker 1: everyone can agree on is a cheaper system is a
[6:45] Speaker 1: better system.
[6:46] Speaker 3: Yeah, definitely. And like we've seen this trend actually for
[6:49] Speaker 3: the past few years, that's worth noting as well. So
[6:52] Speaker 3: we've done, you know, we've been looking at European markets
[6:54] Speaker 3: for a time now. And each year we're seeing less
[6:57] Speaker 3: and less fossil fuels required over the winter period. So
[7:01] Speaker 3: this is, we're still making progress.
[7:03] Speaker 1: So I've got these two numbers written down from your notes.
[7:07] Speaker 1: One is that net load, that's what we call, that's
[7:11] Speaker 1: our kind of power market word for that gap that
[7:14] Speaker 1: needs to be filled by the fossil generation. It's going
[7:17] Speaker 1: to be down 28% in Northwest Europe and 16% in
[7:20] Speaker 1: Southern Europe. Is that compared to last winter? Are we
[7:23] Speaker 1: saying compared to the summer?
[7:25] Speaker 3: It's compared year on year. So that's compared to last winter.
[7:28] Speaker 2: So that's a pretty big difference then.
[7:31] Speaker 3: Yeah, it is a pretty big drop. And a lot
[7:35] Speaker 3: of it comes from, firstly, how the French nuclear fleet
[7:39] Speaker 3: is performing. The French nuclear fleet is very big. And
[7:44] Speaker 3: if you have most of the plants operating without any issue,
[7:48] Speaker 3: basically it just means that a lot of other markets
[7:51] Speaker 3: don't need more gas and coal. The other thing is that,
[7:54] Speaker 3: as I've said, this net load number has been dropping
[7:57] Speaker 3: over the past few years. That's because every year Europe
[8:01] Speaker 3: adds more More solar panels, more wind farms. And this
[8:05] Speaker 3: is starting to get to a certain scale and you're
[8:07] Speaker 3: starting to see that these numbers, just because there's more
[8:10] Speaker 3: capacity available, you also have more generation. So that's just
[8:13] Speaker 3: kind of eating into the share of net load. Yeah,
[8:16] Speaker 3: that's why we have such a big drop.
[8:18] Speaker 1: We're beyond the point where we're saying it's moving the needle.
[8:21] Speaker 1: It's like really accelerating the needle.
[8:23] Speaker 2: Yeah, yeah. I think the thing that's interesting.
[8:25] Speaker 1: Here, though, is, I mean, you alluded to issues with
[8:28] Speaker 1: the gas market, because it's kind of like there's maybe
[8:31] Speaker 1: this dichotomy of good news and bad news. And a
[8:36] Speaker 1: couple of weeks ago, we did a podcast with our
[8:38] Speaker 1: European gas team talking about their winter outlook. From what
[8:40] Speaker 1: I remember rightly, it's a little bit dicey on the
[8:43] Speaker 1: gas market front because so much gas that would have
[8:46] Speaker 1: been put in storage over the course of the year
[8:48] Speaker 1: hasn't been because natural gas has been so expensive because
[8:51] Speaker 1: of all the issues around the Strait of Hormuz. So
[8:54] Speaker 1: we're facing the prospect of potentially really expensive natural gas.
[8:58] Speaker 1: So it's like the expensive bit of the system could
[9:01] Speaker 1: be really, really, really expensive. But then what you're saying
[9:04] Speaker 1: is we don't need to rely on the expensive part
[9:07] Speaker 1: of the system as much as maybe in years gone by.
[9:09] Speaker 1: So there's a bit of a question as to like, well,
[9:11] Speaker 1: which of.
[9:12] Speaker 2: These things is going to win out? Do we have
[9:14] Speaker 2: a view on that?
[9:15] Speaker 3: So every time we come towards a winter period, you
[9:19] Speaker 3: have things that you can kind of rely upon and
[9:23] Speaker 3: you have things that are a little bit into question.
[9:26] Speaker 3: So I think who is going to win out depends
[9:28] Speaker 3: on various factors, right? So every outlook we produce, we
[9:31] Speaker 3: also talk about the risk to each outlook. So for example,
[9:35] Speaker 3: if let's say there are some kind of unplanned nuclear
[9:39] Speaker 3: outages in France, it means that this coming winter, we
[9:42] Speaker 3: might end up needing more gas and that's a problem.
[9:45] Speaker 3: If let's say we have a long stretch of time
[9:48] Speaker 3: where wind speeds are really low, then that's also a problem.
[9:52] Speaker 3: And this has happened before. I think it's a phenomenon
[9:55] Speaker 3: called Dunkelflaute, where you have no renewable generation, lots of demand,
[10:00] Speaker 3: and the system becomes really tight. And that's also a
[10:03] Speaker 3: situation where we need more gas. So it's kind of
[10:06] Speaker 3: like a bit of a tug on war as we
[10:07] Speaker 3: get towards the point where most of the system is
[10:11] Speaker 3: renewable and reliable. But for now, I think it depends
[10:15] Speaker 3: on what happens is how much gas we need and
[10:17] Speaker 3: how much clean power we need.
[10:19] Speaker 1: The picture I'm getting from looking towards the winter is
[10:21] Speaker 1: that on a physical level, it's going to be fine.
[10:25] Speaker 1: There's ample capacity coming from various different sources. And so,
[10:29] Speaker 1: you know, there is maybe a bit of an open
[10:30] Speaker 1: question of like, how much of it is met by wind?
[10:32] Speaker 1: How much of it comes from gas? But there's sort
[10:34] Speaker 1: of some optionality there. But the big uncertainty is how
[10:39] Speaker 1: things like the weather and maybe politics affect the economics.
[10:43] Speaker 2: Of everything.
[10:43] Speaker 1: So the system will be fine on a physical level,
[10:47] Speaker 1: but there's a bit of an open question as to
[10:48] Speaker 1: how much it's all going to cost in the wholesale markets.
[10:52] Speaker 3: Yeah, we don't know. And Because of the way wholesale
[10:55] Speaker 3: markets are structured, where the most expensive generating facility sets
[11:00] Speaker 3: the power price, that's where we see the real uplift
[11:04] Speaker 3: in prices. Because every time you have the most expensive generator,
[11:08] Speaker 3: it's most likely a gas plant. So that keeps things
[11:11] Speaker 3: on the high side for power prices. Even though, like
[11:13] Speaker 3: you said, system-wise, we have lots of renewable power.
[11:17] Speaker 1: It's such an interesting thing, this. I mean, just bringing
[11:19] Speaker 1: it to the politics, because, I mean, in Europe, I've
[11:21] Speaker 1: heard these narratives where people say, look, we've built all
[11:25] Speaker 1: of these renewables, but power is expensive. So it was
[11:29] Speaker 1: a mistake building all those renewables, whereas actually, and I've
[11:33] Speaker 1: also heard people, I'm based in the US, say that
[11:36] Speaker 1: about Europe. They say, look at all the renewables they
[11:38] Speaker 1: built in Europe. And yet power is expensive. They should
[11:40] Speaker 1: have relied on fossil fuels. Whereas actually the causality is
[11:45] Speaker 1: really mixed up there. Leaving aside the environmental benefits, the
[11:49] Speaker 1: appeal of the renewables is they're being built because power
[11:54] Speaker 1: is so expensive, because fossil fuels are expensive.
[11:57] Speaker 2: In Europe.
[11:58] Speaker 1: And so then the argument I would make is that
[12:01] Speaker 1: then to sort of say, oh no, renewables make power
[12:03] Speaker 1: more expensive, therefore we need to rely more on fossil fuels.
[12:05] Speaker 1: It leaves you even more exposed to some of this volatility. Obviously,
[12:10] Speaker 1: that's just my two cents. But I suppose I just
[12:13] Speaker 1: wanted to highlight this because there is this kind of
[12:15] Speaker 1: slight paradox that we're talking about, you know, that the
[12:18] Speaker 1: renewables are pulling the price down, but it might still
[12:20] Speaker 1: be an expensive winter. And we know how that then
[12:23] Speaker 1: plays out in Europe. Everyone sees current events through the
[12:27] Speaker 1: lens of their own political preferences, but it's always interesting
[12:30] Speaker 1: how this narrative plays out.
[12:32] Speaker 2: It is.
[12:32] Speaker 3: It's like a very difficult situation that Europe is in,
[12:36] Speaker 3: to be honest, because the problem with renewables is that
[12:39] Speaker 3: they're very weather dependent and nobody can predict the weather really.
[12:44] Speaker 3: And the thing is, because renewables happen when they want to,
[12:47] Speaker 3: you kind of need to build a very reliable system
[12:50] Speaker 3: around it. You need to have some kind of backup
[12:52] Speaker 3: power that's you know cheap and available but right now
[12:55] Speaker 3: the backup power is gas so we're stuck in this
[12:59] Speaker 3: little quagmire for now well let's.
[13:01] Speaker 1: Talk about maybe some of the longer term outlooks the
[13:04] Speaker 1: team recently published a forecast of power prices in germany
[13:09] Speaker 1: You're currently working on a forecast of power prices in
[13:13] Speaker 1: the UK. So, I mean, don't tell us your findings yet.
[13:16] Speaker 1: You know, we'll look into that. We recently published a
[13:19] Speaker 1: long-term power price forecast in Japan, which obviously we're not
[13:22] Speaker 1: talking about Japan right now. But you kind of made
[13:24] Speaker 1: an interesting observation, actually. I think we were on a
[13:27] Speaker 1: group call in our team. And I think it was
[13:29] Speaker 1: you who said it, is that it's interesting that Japan
[13:31] Speaker 1: long-term outlook and the Germany long-term outlook both have the
[13:34] Speaker 1: same pattern, which is power prices falling in the near term,
[13:39] Speaker 1: And then on a longer term timescale, like maybe beyond
[13:42] Speaker 1: the 2030s or maybe from the mid 2030s, starting to
[13:45] Speaker 1: climb again.
[13:46] Speaker 2: So what's going on there? Yeah.
[13:48] Speaker 3: And it's not just Japan and Germany. I mean, we've
[13:50] Speaker 3: observed the same thing in our previous outlook for the
[13:53] Speaker 3: UK as well. So what generally happens when you stretch
[13:57] Speaker 3: out a power market outlook to like 2050 is that
[14:02] Speaker 3: in the first probably 10 years of the outlook, Markets
[14:05] Speaker 3: like Germany, UK, even Japan are building out a lot
[14:09] Speaker 3: more renewable power. Now, as the share of renewable grows
[14:13] Speaker 3: in each of these systems, like let's say Germany, for example, right?
[14:17] Speaker 3: Then they drag down the power price. But there comes
[14:21] Speaker 3: like a point in each outlook where the amount of
[14:25] Speaker 3: wind and solar, for example, in a system starts to
[14:28] Speaker 3: kind of saturate itself. Because you can only have that
[14:32] Speaker 3: much wind and solar and you're eventually going to need
[14:35] Speaker 3: something to produce reliable power when there's no wind and
[14:38] Speaker 3: solar available. And besides that, that's one thing. And the
[14:42] Speaker 3: other thing is that power demand, while the growth is
[14:45] Speaker 3: slow in Europe at the moment, it does pick up
[14:47] Speaker 3: eventually when you have more data centers, you have more
[14:51] Speaker 3: electric vehicles. So that also helps lift power prices in
[14:55] Speaker 3: the future. Now, the problem is that when wind and
[14:58] Speaker 3: solar have reached a saturation point, the next best thing
[15:02] Speaker 3: that a market like Germany has is a gas plant.
[15:05] Speaker 3: And gas plants are affected by firstly the cost of
[15:08] Speaker 3: gas and also affected by the cost of carbon. And
[15:11] Speaker 3: that's the thing that really leads prices up in the
[15:13] Speaker 3: long term. It's like we don't really have any other
[15:16] Speaker 3: option for now than the gas plant. And that just
[15:18] Speaker 3: means that if you have growing demand and a fixed
[15:21] Speaker 3: amount of wind and solar or maximum amount of wind
[15:24] Speaker 3: and solar, higher prices will come.
[15:26] Speaker 1: I had a slightly different interpretation, you know, let's dig
[15:30] Speaker 1: into this. This is like, you guys are going to
[15:33] Speaker 1: hear a little bit of what would probably be a
[15:35] Speaker 1: behind the scenes conversation as we figure this out. We're
[15:38] Speaker 1: going to do it on the podcast. So let me
[15:40] Speaker 1: throw my interpretation at you. As I think is well established,
[15:44] Speaker 1: wind and solar, and then, you know, even batteries enable
[15:48] Speaker 1: solar to go further, they drag the power price down.
[15:50] Speaker 1: And those can get added very quickly to the system.
[15:53] Speaker 1: So they, you know, in the near term, we see
[15:55] Speaker 1: this downward trend in prices driven by wind and solar.
[15:58] Speaker 1: And that affects the economics of all of generation. You know,
[16:02] Speaker 1: price cannibalization, we call it, particularly impacts wind and solar.
[16:06] Speaker 1: So they start to saturate. But they've dragged down the
[16:09] Speaker 1: economics for gas plants, for coal plants as well. And
[16:13] Speaker 1: so there's kind of just an overall surplus of supply.
[16:16] Speaker 1: And those gas and coal plants aren't making enough money.
[16:19] Speaker 1: And so at a much slower rate, after this initial
[16:22] Speaker 1: shock to the system of all of the renewables being added,
[16:25] Speaker 1: some of these fossil fuel plants... start to retire. But
[16:29] Speaker 1: it's a sort of a delayed effect. It happens after
[16:32] Speaker 1: the fact. And so then the margins around the power market,
[16:35] Speaker 1: it's almost like it rebalances again. And so it means
[16:38] Speaker 1: that you're not necessarily always getting such an efficient plan
[16:42] Speaker 1: in the merit order. Basically, less supply of gas-powered electricity
[16:46] Speaker 1: means that gas-powered electricity is going to be a bit
[16:48] Speaker 1: more expensive, is a more simple way of saying it. Anyway,
[16:52] Speaker 1: I guess my point is that there's also this factor
[16:54] Speaker 1: of a delayed impact of retirements in the wake of
[16:57] Speaker 1: all of this wind and solar capacity being added. The
[17:00] Speaker 1: fossil fuel plants, they're initially in overcapacity and they re-find
[17:04] Speaker 1: the balance of how much of them are actually needed.
[17:07] Speaker 1: Do you think that's a factor? Sorry, that was a
[17:08] Speaker 1: really long explanation. But Anu, tell me if I'm right
[17:11] Speaker 1: or wrong.
[17:12] Speaker 3: No, I don't disagree. That is a contributing factor, right?
[17:17] Speaker 3: In 10 years time, we're just left with some really
[17:20] Speaker 3: old plants, basically, that have a very high operating cost.
[17:24] Speaker 3: And that's not helpful, right? The higher the operating cost,
[17:28] Speaker 3: the higher the price they need, right? So that lifts
[17:31] Speaker 3: prices as well. But I suppose when we also, the
[17:34] Speaker 3: other thing to add is like when we produce an
[17:37] Speaker 3: outlook all the way up to 2050, we also have
[17:40] Speaker 3: to account for what needs to be built to supply
[17:45] Speaker 3: the power system. So in a way, in certain models,
[17:48] Speaker 3: let's say the German model or the UK model, we
[17:50] Speaker 3: also have new plants coming into the system that refreshes
[17:53] Speaker 3: it a little bit. But that maybe goes back to
[17:56] Speaker 3: your rebalancing, right? You have this X amount of wind
[18:00] Speaker 3: and solar in the system. And then finally, this firm
[18:02] Speaker 3: capacity needs to come back in and rebalance the market.
[18:05] Speaker 3: So yeah, maybe we got there in the end.
[18:07] Speaker 1: Do you know what? First, I think those are legit points.
[18:10] Speaker 1: The reason being is that this issue of near-term price
[18:14] Speaker 1: cannibalization around renewables is really, it's a well-told story. And
[18:19] Speaker 1: the wholesale market revenues that renewables can make will decline
[18:23] Speaker 1: as more and more renewables are added to the system.
[18:26] Speaker 1: But people are still building renewables because there are people, organizations,
[18:31] Speaker 1: utilities that want clean power willing to sign PPAs, power
[18:34] Speaker 1: purchase agreements. And so they will say like, I will
[18:38] Speaker 1: pay X amount of money for the next 10 years
[18:40] Speaker 1: for the output of your solar farm. And, you know,
[18:42] Speaker 1: it gives certainty to the owner of the solar farm.
[18:46] Speaker 1: And also it brings various benefits to the offtaker, which,
[18:50] Speaker 1: you know, depends on their particular agenda and interests.
[18:52] Speaker 2: There's a lot of PPAs happening.
[18:53] Speaker 1: There's also contracts for difference, other policy support.
[18:56] Speaker 2: Auctions.
[18:57] Speaker 1: Exactly, auctions that help everyone through. But these things, it
[19:00] Speaker 1: depends on the mechanism we're talking about. But they have
[19:02] Speaker 1: like a time limit, like of say, PPA might typically
[19:06] Speaker 1: be 10 years. And that 10 years maybe isn't enough
[19:09] Speaker 1: to justify the cost of building the wind or solar farm.
[19:13] Speaker 1: It's still depending on what happens next in the period
[19:16] Speaker 1: after the 10 years. And if we were to assume like,
[19:19] Speaker 1: oh yeah, the power price goes down and it stays down,
[19:21] Speaker 1: then that's like a lot more... bleak for those wind
[19:24] Speaker 1: and solar assets. Because if we're saying, oh, the wholesale
[19:26] Speaker 1: power prices, they cannibalize, but then what me and Anu
[19:28] Speaker 1: were just debating, they decannibalize, if we want to use
[19:32] Speaker 1: that word. You heard it here first, by the way,
[19:35] Speaker 1: if this becomes an industry term, they decannibalize. And that
[19:38] Speaker 1: means that the actual asset value of that project you
[19:42] Speaker 1: might be developing is significantly changed because that merchant tail,
[19:46] Speaker 1: which is what we call the period after your contract
[19:49] Speaker 1: for difference or P has expired, is maybe suddenly a
[19:51] Speaker 1: lot more favorable than you might have thought. So that's
[19:54] Speaker 1: why I think this matters. It's not just a nerdy
[19:58] Speaker 1: deep dive into like some theoretical thing. I think this
[20:01] Speaker 1: is actually a really important question that we're still playing with, right?
[20:04] Speaker 3: Yeah, it matters a lot. I mean, an asset, wind, solar, battery,
[20:09] Speaker 3: could have a 25 to 30 year lifetime. And like
[20:12] Speaker 3: you said, the longest CFD in the whole European market,
[20:17] Speaker 3: CFD is a contract for difference, as Tom said, it's
[20:19] Speaker 3: kind of like a strike price that renewable power earns,
[20:22] Speaker 3: regardless of what the power market prices. So even the
[20:26] Speaker 3: longer CFD is 20 years, so they still need to
[20:28] Speaker 3: do something after that. So yeah, it definitely does matter
[20:31] Speaker 3: what the longer term outlook looks like.
[20:33] Speaker 1: Let's get back into the specifics. We talked about, you know, France,
[20:38] Speaker 1: its central role as a provider of cheap nuclear for
[20:41] Speaker 1: a lot of the rest of Europe. We talked a
[20:44] Speaker 1: little bit about Germany and the story behind its prices
[20:47] Speaker 1: going down and then coming up again.
[20:49] Speaker 2: What are we saying about Italy?
[20:51] Speaker 3: Italy is quite An interesting market because right now, Italy
[20:55] Speaker 3: is one of those markets which we consider to be
[20:57] Speaker 3: very gas heavy, meaning that within any given day, gas
[21:03] Speaker 3: power is pretty much on all the time and is
[21:06] Speaker 3: the main price setter for this market. Even though Italy
[21:10] Speaker 3: is starting to build out more solar, more wind, Italy
[21:14] Speaker 3: is also one of the most expensive markets in Europe. price-wise,
[21:18] Speaker 3: wholesale power price-wise. So it kind of puts it in
[21:21] Speaker 3: a strange position. Now, the outlook for Italy is that
[21:25] Speaker 3: prices actually rise over the next 10 years, even though
[21:29] Speaker 3: they start to build up more wind than solar. And
[21:31] Speaker 3: this probably comes back to the points we were talking
[21:33] Speaker 3: about before, how you have a lot of gas, you
[21:36] Speaker 3: can't really get rid of it yet, even though you
[21:38] Speaker 3: have a lot of wind, solar and batteries, you still
[21:41] Speaker 3: need it. And coming back to what I said before,
[21:43] Speaker 3: so the price of carbon really doesn't help Italy out.
[21:46] Speaker 1: The other thing that's interesting about Italy, I mean, well,
[21:49] Speaker 1: there's a couple of things that are interesting. One is
[21:51] Speaker 1: it's almost like an island from a power system point
[21:54] Speaker 1: of view, in that it's quite hard to build interconnectors
[21:57] Speaker 1: across the Alps. And there is interconnection with the rest
[21:59] Speaker 1: of Europe, but it's basically on all day. It's not dynamic.
[22:03] Speaker 1: It's maxed out. There needs to be more. And the
[22:05] Speaker 1: other thing, there isn't any nuclear in Italy. And nuclear
[22:09] Speaker 1: provides a sort of price relief from expensive gas. So
[22:13] Speaker 1: I suppose from the point of view, if you are
[22:15] Speaker 1: someone who's interested in building solar and batteries, Italy is
[22:20] Speaker 1: perhaps a pretty attractive market right now. I mean, I
[22:23] Speaker 1: know that in our outlook for Spain, we very much
[22:25] Speaker 1: see that saturation that we talked about elsewhere.
[22:28] Speaker 2: But Italy's not at that point yet.
[22:30] Speaker 1: And some of the fundamentals of the market, you know,
[22:33] Speaker 1: their exposure to gas, maybe the lack of interconnection, the
[22:36] Speaker 1: lack of nuclear, all of that adds up to it
[22:39] Speaker 1: maybe having a bit more runway still for solar and batteries.
[22:42] Speaker 2: Is that what the takeaway is here?
[22:44] Speaker 3: Yeah, the takeaway is definitely that Italy could be a
[22:48] Speaker 3: bit of an outlier, especially like you said, when you
[22:50] Speaker 3: compare to Germany, UK, Spain.
[22:53] Speaker 1: Etc.
[22:53] Speaker 3: Italy, you can still build out solar and get a
[22:57] Speaker 3: pretty decent price for it in Italy. So what we
[23:00] Speaker 3: like to do is we like to measure how much
[23:03] Speaker 3: money a certain type of generation like solar or wind
[23:06] Speaker 3: can make from wholesale markets. And we find that although
[23:09] Speaker 3: there is what we call price cannibalization in Italy because
[23:13] Speaker 3: solar operates all at the same time. It generates power
[23:16] Speaker 3: all at the same time, cannibalizes its prices. It's less
[23:19] Speaker 3: severe in Italy than it is in a place like
[23:22] Speaker 3: Germany or Spain where the amount of solar in the
[23:25] Speaker 3: system pushes prices far below zero. Whereas in Italy, because
[23:29] Speaker 3: you have that base of gas plants powering the market,
[23:33] Speaker 3: you always get a half decent price for your solar
[23:36] Speaker 3: power in Italy. But, you know, over time... this realized
[23:40] Speaker 3: power price for solar still drops, right? Over the next
[23:43] Speaker 3: 10 years, it still drops. But as it drops, that's
[23:45] Speaker 3: where I think batteries can enter the conversation, right? Because
[23:49] Speaker 3: batteries rely on big highs and low power prices within
[23:53] Speaker 3: a day. And if there's more solar in Italy, basically
[23:56] Speaker 3: it's driving midday prices lower, good time for batteries to charge,
[24:00] Speaker 3: lifting evening prices higher, good time for batteries to discharge.
[24:04] Speaker 3: So there's a bit of an evolution of sort happening
[24:06] Speaker 3: in Italy over the next 10 years.
[24:09] Speaker 1: I think you touched on, I just want to go
[24:11] Speaker 1: back to a point you made at the start of
[24:13] Speaker 1: what you were just saying, which I think is a
[24:14] Speaker 1: really important thing to emphasize. I mean, we talk about
[24:16] Speaker 1: price cannibalization and it's cannibalization is such a dramatic word.
[24:21] Speaker 1: And so we like cannibalization is really bad. But price
[24:25] Speaker 1: cannibalization happens with all renewables. And if we say for
[24:29] Speaker 1: a market, oh, it's only earning 50% of what the
[24:34] Speaker 1: average wholesale price is, so it's really at a disadvantage. Well,
[24:37] Speaker 1: if it's earning 50% of a really high price, then
[24:41] Speaker 1: that can still be attractive and worth making your solar
[24:44] Speaker 1: farm for. It's not like that cannibalization is just the
[24:48] Speaker 1: death of everything, I suppose.
[24:50] Speaker 2: Yeah.
[24:50] Speaker 1: Yeah.
[24:50] Speaker 3: Price cannibalization, I like to describe it as like a feature,
[24:54] Speaker 3: not a bug.
[24:54] Speaker 2: It's a feature, not a bug. Yeah, exactly.
[24:56] Speaker 1: I want to talk about some of the sort of,
[24:59] Speaker 1: you know, you alluded to it earlier when we were
[25:01] Speaker 1: talking about decannibalization and debating, you know, what's really behind that.
[25:05] Speaker 1: But one of the points you mentioned was new sources
[25:07] Speaker 1: of demand. That's kind of interesting because the historical trend
[25:10] Speaker 1: in Europe has been declining power demand. So new demand
[25:13] Speaker 1: is a new thing. Yeah, what's behind that? And is
[25:15] Speaker 1: it evenly spread across the continent or is it sort
[25:18] Speaker 1: of very specific markets are seeing power demand rising?
[25:23] Speaker 3: So power demand is, yeah, it's definitely not been equal
[25:26] Speaker 3: and proportionate across all markets. If you were to categorize
[25:31] Speaker 3: areas where power demand is growing. really quite slow and stagnant,
[25:35] Speaker 3: I would say, in Northwest Europe. If you were to
[25:38] Speaker 3: categorize places where power demand is actually starting to show
[25:42] Speaker 3: signs of growth from these said new sources, and also
[25:46] Speaker 3: things like electrification, growth in industry, manufacturing, etc. Then I
[25:51] Speaker 3: would say you'd have the Nordic markets. These markets have
[25:54] Speaker 3: been growing. And also in the South, places like Spain,
[25:57] Speaker 3: power demand has been growing at quite a healthy rate. Now,
[26:00] Speaker 3: Across Europe, we are seeing an uptick in electric vehicles.
[26:05] Speaker 3: Many major tech companies are trying to build data centers
[26:10] Speaker 3: in Europe. It's harder than it seems, but the numbers
[26:13] Speaker 3: are coming through. And besides that, there's also things like
[26:16] Speaker 3: heat pumps coming to the system. As Europe gets hotter
[26:19] Speaker 3: and hotter, more people want air conditioners as well. So
[26:22] Speaker 3: all these new sources coming through are the drivers for
[26:26] Speaker 3: the next decade, I think.
[26:28] Speaker 1: One of the things that's worth pointing out here as
[26:30] Speaker 1: well is, you know, if we're looking at this from
[26:32] Speaker 1: an environmental lens, power demand growth might sound bad. And
[26:36] Speaker 1: not all of the things you mentioned can be said
[26:38] Speaker 1: to be good for reducing emissions. But electrification of transport
[26:42] Speaker 1: through electric vehicles, electrification of heat, some of these other things,
[26:45] Speaker 1: they were always going to be part of the picture
[26:48] Speaker 1: in a push towards a cleaner economy across the continent.
[26:52] Speaker 1: It was always going to be at some point that
[26:54] Speaker 1: would mean more electricity demand. Power markets playing a bigger role.
[26:57] Speaker 1: I think this whole thing with data centers has maybe
[27:00] Speaker 1: brought forward that sort of question a little bit. But
[27:03] Speaker 1: it's not a bad thing from any point of view
[27:06] Speaker 1: that power demand is going up, not least if you're
[27:08] Speaker 1: someone who is providing power. Of course, you want there
[27:11] Speaker 1: to be more demand for what you're doing.
[27:13] Speaker 3: Yeah, it's good news for all generators, really, especially wind
[27:17] Speaker 3: and solar, who are facing this price cannibalization effect, right?
[27:22] Speaker 3: If there's more demand in the system, there's more places
[27:25] Speaker 3: for your power to go. I think everybody wins.
[27:28] Speaker 1: And are we seeing some of this new demand? I mean,
[27:31] Speaker 1: some of it is kind of maybe spread uniformly across
[27:34] Speaker 1: the continent. But things that can be concentrated, I mean,
[27:37] Speaker 1: specifically things like data centers, are we seeing that they're
[27:39] Speaker 1: getting built where power is cheap?
[27:42] Speaker 3: Yeah, so I have looked a little bit into the
[27:45] Speaker 3: Nordic markets this year. And the Nordic markets have... Unlike Italy,
[27:50] Speaker 3: some of the cheapest power prices across Europe, that's because, well,
[27:54] Speaker 3: it's not very heavily populated and they just have a
[27:57] Speaker 3: lot of resources. Norway, for example, has loads of hydro resources.
[28:01] Speaker 3: It's also generally quite a windy area, so there's lots
[28:04] Speaker 3: of areas to build wind farms. So prices are very cheap.
[28:08] Speaker 3: And we have seen data centers flock to these markets because, well,
[28:13] Speaker 3: not only is power prices cheap, Basically, you have friendly governments,
[28:18] Speaker 3: you have a permit to build it, and the weather
[28:20] Speaker 3: is also cool, right? We've talked probably on this podcast
[28:23] Speaker 3: in the past, we've talked about how data centers need
[28:25] Speaker 3: a lot of cooling. Well, if you build it in
[28:27] Speaker 3: a cold place, it's very ideal.
[28:29] Speaker 2: You've got a head start.
[28:30] Speaker 3: So the Nordic markets, Finland especially, is probably going to be,
[28:34] Speaker 3: if they are able to build enough grid capacity to accommodate,
[28:37] Speaker 3: it's going to be probably one of the rising stars
[28:40] Speaker 3: in Europe for data center growth.
[28:43] Speaker 1: You put a mental image in my mind, by the way,
[28:45] Speaker 1: when you're talking a flock of data centers. Like birds. Yeah,
[28:50] Speaker 1: flying to the Nordics.
[28:52] Speaker 3: Like Canada goose.
[28:53] Speaker 2: Yeah, exactly.
[28:55] Speaker 1: But data centers. Anu, this has been really fascinating. Obviously,
[28:59] Speaker 1: we get to talk a lot. And this is an
[29:01] Speaker 1: area I find really interesting. But nevertheless, I found it
[29:03] Speaker 1: really interesting talking through it.
[29:04] Speaker 2: All with you.
[29:05] Speaker 1: Is there anything that we haven't covered that you think
[29:07] Speaker 1: we should be looking out for when it comes to
[29:09] Speaker 1: power markets in Europe, whether it's policy development or it's
[29:13] Speaker 1: technology development or just a trend that you're seeing that
[29:16] Speaker 1: we haven't already covered? Yeah, what else is there that
[29:18] Speaker 1: we should know?
[29:19] Speaker 3: I think the one thing that comes up a lot is...
[29:23] Speaker 3: how power markers need to be more flexible. This probably
[29:27] Speaker 3: ties into some of the things we talked about, like batteries.
[29:31] Speaker 3: But the one thing that crops up a lot is like,
[29:33] Speaker 3: where do consumers come into play to make a power
[29:37] Speaker 3: system more robust? And that's something that's we call demand
[29:41] Speaker 3: side flexibility. So I think that's definitely something to watch
[29:45] Speaker 3: and to try and figure out how to make it
[29:47] Speaker 3: work going forward.
[29:48] Speaker 1: That's a really good point. We've talked so much about
[29:50] Speaker 1: supply today. And we've talked about demand as if it
[29:53] Speaker 1: is a.
[29:54] Speaker 2: A static living beast. Yeah, it's like a monolith. It's
[29:58] Speaker 2: like an elephant.
[29:59] Speaker 1: Whereas maybe it can be more like a cat. Anu,
[30:02] Speaker 1: thank you so much for joining today. I think it's
[30:04] Speaker 1: really fascinating just stepping back and looking at, you know,
[30:07] Speaker 1: we spend a lot of our time looking at the
[30:09] Speaker 1: trends on a market by market basis in a lot
[30:12] Speaker 1: of detail, but stepping back and looking at it all
[30:14] Speaker 1: and seeing a bigger picture is really a worthwhile exercise.
[30:17] Speaker 1: So thank you for guiding us through that today.
[30:20] Speaker 3: Yeah, but thank you for having me. It was fun.
[30:22] Speaker 1: Thank you. Today's episode of Switched On was produced by
[30:34] Speaker 1: Cam Gray with production assistance from Kamala Schelling.
[30:37] Speaker 2: Bloomberg NEF is a service provided by Bloomberg Finance LP
[30:41] Speaker 2: and its affiliates.
[30:42] Speaker 1: This recording does not constitute nor should it be construed
[30:44] Speaker 1: as investment advice, investment recommendations, or a recommendation as to
[30:48] Speaker 1: an investment or other strategy. Bloomberg NEF should not be
[30:51] Speaker 1: considered as information sufficient upon which to base an investment decision.
[30:55] Speaker 1: Neither Bloomberg Finance LP nor any of its affiliates makes
[30:58] Speaker 1: any representation or warranty as to the accuracy or completeness
[31:02] Speaker 1: of the information contained in this recording and
[31:04] Speaker 2: Any liability as a result of this recording is expressly disclaimed.

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