War in Europe and Its Impact on Current Energy Prices


Niklas Hirmke


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Alert level: Gas Emergency Plan

Gas imports from Russia were reduced by 60% due to delayed maintenance of the Nord Stream 1 pipeline in mid-June. The German Federal Ministry of Economics and Climate Protection declared the Gas Emergency Plan alert level on June 23, 2022. It remains unclear how gas imports will develop even after successful maintenance.

At present, Germany called stage two of the three-stage emergency plan. The situation could therefore deteriorate even further. Stage three, for example, could be declared if Russia decided to further reduce or even completely stop gas imports to Germany. Currently, gas flow level of Nord Stream 1 is at around 40% of maximum capacity. If the gas imports from Russia stay at that level, it will be hard to reach the by law required gas storage level of 90% by November 1st without additional measures.

Stage 3 of the gas emergency plan means that comprehensive regulations on use, distribution, transportation, and conservation of energy can be quickly enacted under the Energy Security Act.

Energy prices are rising rapidly

Every day, the news report that electricity prices are reaching new record highs. Why raising gas prices also affects general electricity prices can be traced back to the so called Merit-Order Effect

To ensure an economically optimal supply of electricity, there is an order of feeding into the power plants. This means that the power plants that produce electricity with the most favorable marginal costs are allowed to feed electricity into the grid first, according to the merit order. The prices on the EEX (Energy Exchange) are created the same as the classic market economy when supply and demand meet. E.g. Power plants from renewable energies, such as wind and solar, are added first in the merit order. Subsequently, nuclear, coal and natural gas are added until the demand for electricity is met.

With less gas being imported, demand is greater than supply and therefore gas turbine operator can and must raise prices. Gas turbines are always at the end of the merit-order as they are used to cover peak times and therefore set the general energy price. With raising gas prices - you know where this leads to - the electricity price also rise.

More Energy Independence For Germany

Europe and especially Germany as well as private households should learn how to become more energy independent - especially from fossil fuels. Solar power is the simplest and most common used way to generate electricity for private households. Heat pumps, among others, can also be operated with self-produced electricity.

Germany also aims at raising the share of renewables to 80% by 2030.

If you are interested, you can follow the latest occurrences of the German gas supply here.

Picture from Luisella Planeta Leoni LOVE PEACE 💛💙 on Pixabay