[ad_1]
The price of energy has trended downward from its record highs of 2022, relieving pressure on governments and corporations around the world. However, new research warns that global supply dynamics in the sector remain uncertain, leaving energy costs prone to volatility in the near-future.
The last 12 months have illustrated the universal importance of energy as a cost driver across all industries. Price volatilities demonstrated the impact it can have on firms, no matter what proportion of their cost.
According to a new study from Efficio, global electricity observed a return to growth as demand has increased by 2% above the pre-pandemic average. Prices remain volatile, as sourcing of the power source has become a higher priority for businesses across Europe following 2022’s price hikes of gas, but there are mitigating factors that have to some extent calmed this.
Source: Efficio
In particular, European governments have reacted by turning to other sources of generation. In France, which had kept 32 of its 56 nuclear reactors offline in 2022, the government has suggested a reintroduction of nuclear energy as a key component of its industrial strategy, pledging to turn plants back on and build 14 new small-scale reactors by 2030 – possibly allowing for possible price drops in liquefied natural gas (LNG) which is does not require, helping heating become more affordable for households and businesses, while also providing a stop-gap for renewable energy alternatives to come to fruition.
To that end, hydro power has already been a strong contributor to European energy, as countries like Norway proved invaluable to keeping European energy functional in August 2022. Norway’s strong hydro power grid that provides energy for nearly the entire nation as well as 40% of the more wind-reliant Denmark – enabling the countries to increase their gas exports into Europe by 4%. At present, then, prices of electricity and gas have trended downwards from their record highs last summer, relieving pressures on firms and governments.
However, the emergent energy is open to new forms of disruption – and the impacts of climate change have resulted in a lack of rainfall in the second half of 2023, which might lower Norway’s storage levels and reduce its export quantities, causing problems for the rest of Europe. Likewise, weather extremes present a key risk for the remainder of the year for energy usage – and could see costs surge again.
Source: Efficio
While the 2022/23 winter was exceptionally mild and helped temper wholesale gas and electricity prices, this time round Northern Europe could face an unusually cold and dry winter due to El Niño weather patterns, and if Asia and North America also see harsh winters, there could be global counterparties vying for the same limited supply. Meanwhile, this could further slow the transition to renewables, particularly with regard to connectivity challenges and achieving flexible, dispatchable power to meet demand after reliance on fossil fuels – which will spike in the short-term.
European gas prices have tapered down by around 51% – the main reference virtual market for gas trading in Europe, the Netherlands’s Dutch TFF, falling from £291/MWh highs in the summer of 2022 – while oil prices have shrunk by around 9%. Even so, then, with US demand increases for gas, and the fact OPEC+ nations have announced multiple production cuts in oil to boost prices since November, the energy market remains prone to price rises in the coming months.
Simon Whatson, vice president at Efficio, commented, “After the turbulent few years all industries have faced, 2023 has shown promising signs of how conditions might improve across even the most impacted of categories. Nonetheless, the situation remains volatile, uncertain, complex, and ambiguous. The development of future-proofing strategies, investment in and access to the right talent, and increased investment in digital innovation will continue to benefit those businesses amid the unpredictable environment we continue to face. We expect to see more business announcements of long-term strategy choices to weather future disruptions, particularly in relation to potential geopolitical uncertainty and environmental risks.”
[ad_2]
Source link