Electricity Prices in Europe

2021 and 2022 proved to be unprecedented years for gas prices in Europe, leading to very high increases in electricity prices as well. The rise in energy prices has severely impacted the economy of the Old Continent and its industry, with significant differences between countries.

The following chart illustrates the historical series of the TTF gas price for one-month deliveries, expressed in euros per megawatt-hour (MWh).

Even before the peak in August 2022, when the gas price reached 236 euros per MWh, there were points of relative maxima both before the Russian invasion of Ukraine (October and December 2021) and after (March 2022).

Given the role of gas in the electricity production mix in Europe, and especially in Italy, the price of the former tends to influence the price of the latter. Moreover, the mechanism for determining electricity prices is linked to the least efficient marginal supply^[1]. This has led to a tighter connection between the two prices during periods of rising natural gas prices, but also to the introduction of measures aimed at limiting price increases while also reducing consumption. However, the failure to reach effective and shared measures at the European level has resulted in different pricing dynamics in individual countries.

The following is a comparison of electricity prices for several European countries, expressed in euros per MWh.

Electricity prices by European country, €/MWh

Before the unusual increases at the end of 2021 and in 2022, electricity prices in the different countries illustrated moved at very similar levels. Subsequently, during the phase of rising gas prices, there were misalignments between the various electricity price quotations.

Spain introduced a measure called tope de gas, effectively decoupling^[2] gas and electricity prices and limiting the annual increase in the latter's prices to +49.6% compared to the 2021 average, while France, Germany, and Italy registered increases of over +141% year-on-year.
Regarding Italy, prices followed the dynamics of those in Germany and, especially, France (given Italy's imports of French energy) and present a positive differential compared to the latter.

A particular case is represented by Poland, which in 2021 recorded lower price levels compared to its European partners, and in 2022 moved to levels close to those in Spain. This is due to Poland's lesser dependence on Russian gas compared to its partners (as gas procurement occurs through the Baltic Pipe) and greater electricity production through domestically sourced coal.

Conclusions

The last two years have been characterized by a return to lower electricity levels compared to those seen in the 2021-2022 biennium, although prices are still far from the annual averages of the 2017-2020 period.

Table: Electricity prices by country, €/MWh

A clear case is Italy, which, on average in 2024, is the only country with a price level above 100 euros per MWh.
In general, only Spain and France have returned to the levels of the 2017-2020 period, thanks to a high share of electricity production from renewable sources, which has at times during the year led to even negative prices^[3].