One problem is the supply of natural gas, used to generate about a fifth of Europe's electricity. Shortages have pushed its price—and so the price of electricity—higher. About a third of European supply comes from Russia; another fifth comes from Norway. Both countries have been hit with disruptions, such as a fire at a processing plant in Siberia, causing lower-than-expected supply. European buyers, such as national gas companies, have looked to the liquified natural gas (LNG) market to make up the shortfall. But they have had to compete with buyers in China and Japan, where demand for LNG is rising. Between January and July LNG imports into Europe were 15% below last year’s volume, notes Graham Freedman, an analyst at Wood Mackenzie, a research firm. Moreover, Europe suffered a cold and prolonged winter that used up inventories. They are about 25% below their long-term average.
Usually European utilities respond to high gas prices by using more coal. But the price of coal is also at record highs on the back of Chinese demand for electricity and production bottlenecks. The cost of European carbon permits are at record highs too. These give the holder the right to emit an amount of greenhouse gases. Because burning coal emits more than burning natural gas, expensive carbon permits add even more to the price.
Another factor is the wind—or lack of it. About a tenth of Europe’s power is generated by the wind. In some countries, including Germany and Britain, the share is twice that. Recently, however, the air has been unusually still. In Germany, for example, during the first two weeks of September wind-power generation was 50% below its five-year average, says Roy Manuell of ICIS, a research firm.
