FRANKFURT (Reuters) - European power prices are likely to remain high in the medium term, Moody's Investors Service said in a report on Wednesday, citing technical problems at French nuclear plants, low water levels after droughts and risks to gas supplies.
"We expect wholesale power prices to remain at historically high levels in the medium term, albeit with marked differences between countries," it said.
"This is despite our expectation of lower power demand in 2022-23 due to industrial demand destruction, itself triggered by high energy prices, and voluntary energy saving measures," it added.
Germany's year-ahead baseload electricity contract, Europe's benchmark, closed at 329 euros ($342) a megawatt hour (MWh) on Tuesday, down two-thirds from August's record high of 1,050 euros but still almost four times above 87 euros a year ago, Refinitiv Eikon data showed.
In France, average power prices have been at a 23% premium to the German benchmark since January 2022 due to the problems at operator EDF's nuclear plants, the report said.
The premium is expected to continue to grow next year, a Moody's analyst said in an online discussion of the report.
Increased outages have also led to France becoming a net electricity importer after 20 years of net exports, and net imports are also expected to continue next year, the report said.
The report, which also looked at Italy, Spain, the Nordics and Britain, said a plunge in Russian gas supplies and lower French nuclear output were pressuring the entire region.
France and Germany account for two-thirds of western Europe's power consumption in an interconnected market.
Hot weather curbed wind and hydro production this summer, boosting demand from quick-to-activate gas turbines, which operate in competition with coal plants. [EL/DE]
Given gas is also needed by many other industries, coal generation will enjoy a revival and decarbonisation will take a step back, Moody's analysts said.
They noted that southern Europe was better placed for gas than the north because of its greater access to liquefied natural gas (LNG) terminals, which Germany is only now constructing.
Separately, European governments are considering windfall taxes to claw back exaggerated profits from utilities and are reviewing price-setting mechanisms, which could lead to changesin the market structure.
Moody's said price projections in the report were based on the current market structure, and any changes could have a significant impact on prices.
($1 = 0.9619 euros)
(Reporting by Vera Eckert and Forrest Crellin in Paris; Editing by Miranda Murray and Mark Potter)