High temperatures they increase electricity demand and reduce the availability of generation in a market conditioned by gas and geopolitics.
Heat waves they are testing the balance of European electrical system the increase in consumption for air conditioning, refrigeration and ventilation coincides with a lower availability of some power plants and with restrictions on networks and equipment.
Furthermore, the energy scenario is complicated by low levels of stored gas, uncertainty in the Strait of Hormuz and market volatility. AleaSoft Energy Forecasting it warns that this combination reinforces the need to use reliable forecasts and hedging strategies tailored to each consumer’s profile.
Heat waves increase electricity demand in Europe
During periods of high temperatures, electricity consumption increases rapidly, with households turning to air conditioning while businesses, data centers and industries are intensifying their use of refrigeration systems.
This increase is usually concentrated at certain times of the day; as a result, operators need to activate more expensive technologies to meet the demand. The effect is greater when wind or solar power production falls at the same time.
In the third week of July, average weekly prices exceeded €110/MWh in most of the main European electricity markets. Italy recorded an average above €160/MWh, while the Iberian market surpassed €138/MWh on July 15.
Generation also loses capacity
Extreme heat affects both supply and consumption; nuclear and thermal power plants require large volumes of water to cool their equipment. When the temperature of rivers and reservoirs rises, environmental regulations may require power reductions.
France has already faced limitations of this type during recent heat waves; a one-off reduction may seem small, but it becomes significant when it coincides with high demand, lower renewable generation, and more expensive gas.
Similarly, high temperatures can reduce the efficiency of transformers, power lines, and other equipmen, this adds operational pressure to a grid that must respond to rapid changes in consumption.
The Strait of Hormuz increases energy risk
The situation in the Strait of Hormuz this introduces another factor of uncertainty; a significant portion of the world’s oil trade and about a fifth of the liquefied natural gas that moves globally travel along this route.
A traffic restriction or a prolonged threat can raise the Brent crude oil and LNG prices Europe is particularly sensitive to this risk because gas continues to set the marginal price of electricity for many hours.
The market does not need a complete disruption to react; simply increasing the perception of risk can boost gas futures and increase competition between Europe and Asia for available shipments.
Lower renewable production adds volatility
The high prices recorded in July are not due to a single cause; lower photovoltaic production in some markets, the fall in the wind power generation the increase in demand and the rise in gas prices coincided during the same week.
This accumulation makes risk management difficult; when several factors change at the same time, the spot price can rise rapidly and affect the margins of companies with high electricity consumption.
Therefore, weather and market forecasts are increasingly important, allowing us to anticipate risk windows and evaluate different energy purchasing scenarios.
Insurance policies are gaining importance among large consumers.
Companies can reduce their exposure through futures, fixed-price contracts, PPAs, and price band structures. These tools help stabilize costs and protect margins.
However, efficient coverage must consider the hourly consumption profile, seasonality, demand flexibility, self-consumption, and storage capacity.
It is also advisable to avoid a strategy focused solely on daylight hours; in many industries, the greatest risk appears in the late afternoon and at night, when photovoltaic production decreases and dependence on other technologies increases.
Layered and multi-term contracting usually offers stronger protection; in this way, companies can combine cost visibility with the ability to adapt to market changes.
The forecast is integrated into the energy strategy
The European summer shows that energy uncertainty cannot be eliminated, but it can be measured and managed. Extreme heat, reduced available generation, and geopolitical risks are forcing energy retailers, generators, and large consumers to re-evaluate their decisions.
In this context, electricity price forecasting and hedging strategies become central to industrial planning, the ability to anticipate scenarios will be crucial to reducing exposure to future episodes of volatility.
Source: Energias-renovables
Photo: Shutterstock
