The dynamic price changes on the European electricity and natural gas market, observed since the third quarter of 2023, particularly encourage entrepreneurs to understand the factors influencing their purchasing strategies. Following events in the international arena allows us to minimize purchasing risks - we see to what extent and how quickly current geopolitics translates into the prices of carriers (let us mention, for example, the drastic price increases as a consequence of the European gas market becoming independent from the supplies of blue fuel from Russia). Market analysts estimate that the current events will still not allow many market participants, both producers, sellers and consumers of energy and gas, to sleep peacefully and will have a significant impact on shaping the landscape of the energy sector in the coming months. Let's look at the picture of the energy and gas market at the beginning of 2024 and let's think now what purchasing strategy we will adopt for 2025.
Current situation on the electricity market
In the first weeks of 2024, we observed declines in electricity prices on the Polish market, which is a continuation of the trend from the fourth quarter of 2023. On December 29, 2023 (the last working day of the year preceding the delivery year of 2024), the price of the annual BASE_Y_24 product was set at PLN 490/MWh. It is worth noting that the minimum energy price achieved in December last year was approximately PLN 471/MWh, which is the lowest level since November 24, 2021.
In the case of other products on the futures market (quarterly, monthly and annual with delivery in subsequent years), we also recorded price declines. Futures contracts currently available for purchase for delivery in 2024 include those for the second, third and fourth quarters, as well as all monthly (except January) and seasonal and weekly contracts. The table below presents a comparison of exchange prices on January 17, 2024 to prices quoted on December 29, 2023 on the Polish Power Exchange (TGE) for the main futures products and SPOT prices (Day Ahead Market) in the TGe24 index.
Analyzing the data, we observe a clear decline in electricity prices over the last three weeks. However, it is worth noting the particularly low level of SPOT prices during the Christmas and New Year period, when many production plants reduced their operations, leading to reduced energy consumption. Let us note that the strong wind at the end of December also had a positive impact on the generation of energy from renewable energy sources, which in turn further contributed to lower prices. The SPOT market is characterized by much greater dynamics compared to the futures products market - energy prices are characterized by significant day-to-day fluctuations. An interesting situation was recorded on December 25, when the average energy price during the day was only PLN 0.17/MWh. During that day, as many as 16 hours had a price equal to or lower than PLN 0/MWh. The chart below shows SPOT prices recorded over the last 3 months.
In 2023, Poland recorded record electricity trade turnover with neighboring countries, reaching the highest volume in history exceeding 23.3 TWh, according to preliminary data from Polskie Sieci Elektroenergetyczne (PSE). This dynamic growth was particularly visible in December, when the highest monthly turnover was recorded, exceeding 2.3 TWh. Poland is increasingly acting as an intermediary, taking advantage of cheaper markets and selling to more expensive ones, and as a participant in three energy trading areas under the FBA mechanism, it is gaining flexibility in providing interconnectors for trade and price arbitrage between areas of Europe.
The above-mentioned factors are some of the reasons for such a significant drop in electricity prices in our country. The charts below show the behavior of energy prices for 2025 (BASE_Y-25 band product) since the beginning of the fourth quarter of 2023, when the price was over PLN 650/MWh. Since then, prices have dropped by approximately 30% and their current level is approximately PLN 460/MWh.
One of the key factors influencing electricity prices is the cost of CO2 emission allowances, the current level of which is EUR 63/t. At the beginning of the fourth quarter of 2023, allowance prices were at the level of EUR 80/t. Due to the fact that domestic electricity generation is largely based on production from fossil fuels that emit CO2 into the atmosphere, the dynamics of changes in allowance prices has a significant impact on the formation of electricity prices in Poland.
The chart below shows the percentage share of individual generation sources in the total energy produced in Poland in 2023. While the capacity of renewable sources (especially photovoltaic and wind power plants) is gradually increasing, the Polish economy will remain dependent on coal sources for many years, and as a result, the prices of emission allowances will continue to have a strong impact on final energy prices.
It is also worth paying attention to potential threats to energy prices in the current period, such as the possibility of low temperatures and unfavorable weather conditions, limiting the production of renewable energy sources. Despite the weather breakdown, the power system showed resilience in December and early January, which we can see in further price declines. However, atmospheric phenomena may affect this stability in the following winter months.
Current situation on the natural gas market
The current conditions on the natural gas market in Poland result in significant price changes, influencing the purchasing strategies of customers. Analyzing the latest data, we observe dynamic price declines. On January 17, 2024, natural gas prices were as follows:
As recently as December last year, the prices of an annual product for delivery in 2025 exceeded PLN 200/MWh. However, within 40 days there was a significant drop of over PLN 35/MWh. Although the current price may seem attractive, we see a continuation of the downward trend and the risk premium that is hidden in the stock price continues to decline.
Additionally, it is worth paying attention to the price of natural gas in the European Dutch TTF index, which is a reference point for gas prices in Europe. Currently, it is approximately EUR 33/MWh, which is a relatively low value compared to the prices from previous quarters. On the last working day of December, the price was higher by over EUR 3/MWh. This is a good prognosis that, despite the initial energy crisis, Europe is coping well without Russian gas. The chart below shows the directions of natural gas imports to the European Union in 2023. Although the EU is gradually reducing its dependence on Russian hydrocarbons, 8.6% of gas imports still came from Russia last year. Countries such as Austria and Hungary still rely on supplies from Russia. The introduction of sanctions is to be another step in achieving the goal of the EU being free from Russian fuels by 2027.
A positive factor is the fact that despite the drop in temperature, the energy system has not collapsed and prices continue the trend. This is mainly due to the high level of filling of gas storage facilities. In Poland, they are 86% full, which is almost 10 percentage points better than the five-year average. The situation is similar across the EU, where warehouses are on average 79% full. At key moments, especially during the lowest temperatures in winter, warehouses played an important role in securing the power and heating systems. Supported by current deliveries, they allowed for effective demand management in difficult climatic conditions.
However, despite the good situation on the European market, the current crisis in the Red Sea is an important factor that may increase the price. QatarEnergy, as a result of attacks carried out by Houthi militants on ships transporting blue fuel, decided to suspend the transport of LNG through the Red Sea. The answer to this situation is to redirect ships around Africa near the Cape of Good Hope, which may generate additional costs (an additional cost of approximately USD 1 million is estimated for each round trip between Asia and Europe). Experts from Allianz Trade emphasize that sea transport prices have increased by 240% since November 2023, reaching levels observed in the fourth quarter of 2022. In recent days, rebels have announced plans for further attacks. Despite the US including the Yemeni movement on the list of terrorist organizations, the Houthis announce continuation of attacks on Israeli ships and those heading to ports in Palestine. This conflict introduces an element of uncertainty regarding the future supply and prices of natural gas, especially in the context of the Red Sea region.
In the short term, the current situation on the energy and gas market requires careful monitoring, and a responsible approach to risk analysis becomes crucial to making effective purchasing decisions. Further events on both the domestic and global markets will shape the landscape of this sector in the coming months, and only the purchasing strategies we adopt will determine the final price level that we will see on future invoices.
Member of the Board