(Bloomberg) -- Europe’s benchmark power price surged above 500 euros ($509) for the first time, ratcheting up pressure on households and businesses as the worst energy crisis in decades looks set to persist well into next year.
German year-ahead electricity rose as much as 11% to 530.50 euros a megawatt-hour on the European Energy Exchange AG. That marks a gain of over 500% in the past year, driven predominantly by Russia’s moves to slash gas supply.
As energy costs continue to soar, industries from glassmakers to metal producers are feeling the pinch. Nyrstar became the latest firm to announce cutbacks on Tuesday, saying it will halt output at its Budel zinc smelter in the Netherlands -- one of Europe’s biggest -- at the beginning of September.
“The longer these price rises go up, the more this will be felt across the economy,” said Daniel Kral, senior economist at consultant Oxford Economics. “The magnitude of the increase and magnitude of the crisis isn’t comparable to anything in the past few decades.”
Countries across Europe are planning for possible power shortages this winter, with some considering rationing supplies to certain industries to ensure essential demand can be met.
While power is usually cheapest in summer, this year that’s not the case as supply concerns and strong demand combine to push prices higher.
Output from France’s nuclear fleet, traditionally the backbone of the region’s power system, is set to be the lowest in decades this year. That’s turned the nation into an electricity importer, leaving neighboring countries more reliant on gas to keep the lights on. French year-ahead power gained as much as 5.3% to a record 670 euros a megawatt hour amid thin trading.
At the same time, droughts and extreme heat across Europe have dried up rivers and reservoirs that are crucial to hydropower supply in some countries, starving the continent of another alternative to fossil fuels. Wind generation has also been below seasonal norms, pushing up costs for near-term power.
The prolonged dry spell has sapped water from the Rhine, a key waterway for the transport of fuels such as coal, with levels now so low that it may become effectively impassable for many barges. Alternative routes via road and rail are costly.
Power prices elsewhere in Europe also jumped Tuesday, with Nordic contracts reaching an all-time high.
Benchmark European gas futures for next month climbed as much as 14% to the highest intraday level since early March.
“We are already seeing industrial demand destruction as gas prices continue to rally,” said Kesavarthiniy Savarimuthu, an analyst at researcher BloombergNEF. And with Germany deciding this week to slap a surcharge on home gas consumers, “households will soon feel the pressure too.”
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