Apr 24, 2025
Europe's energy prices drop as the gas-driven heating season concludes.
Europe's households and businesses are beginning to experience relief from steep energy bills as power prices drop significantly from their 2025 highs. Wholesale spot electricity prices across much of continental Europe have decreased by more than 50% since reaching two-year peaks in early 2025, aided by a notable decline in natural gas costs, which are down a third since January.
Increased output from clean energy sources, especially solar farms, has also contributed to lower power costs, providing some relief for energy consumers and utilities after a costly start to the year.
European utilities had to ramp up gas-fired power production to the highest levels in three years from January to March 2025 due to a significant reduction in wind farm output, which fell 15% compared to the same quarter in 2024 due to below-average wind speeds. Since wind power typically accounts for about 15% of Europe’s electricity supply, utilities compensated for this shortfall by increasing natural gas plant output. Gas-fired electricity supply reached 332 terawatt hours (TWh) in the first quarter, 7% higher than in 2024 and the highest since 2022. This led to natural gas's share of electricity generation in Europe rising to nearly 26%, up from less than 24% the previous year, which increased regional gas prices by about 20% during the peak winter heating season.
As gas emerged as the primary power source during this period, utilities had to pay higher prices, passing some costs onto consumers, leading to increased strain on European households and businesses already facing weak economic growth and tariff fluctuations from the U.S. administration at the time.
With winter now concluded, gas-fired power production in Europe is expected to decline sharply. Historically, gas electricity output drops by 25% from March to June as heating demand ceases and solar production peaks. A similar trend in 2025 could further decrease gas prices and lower costs for power producers, although utilities will need to replenish stockpiles ahead of next winter, maintaining some gas purchases despite reduced generation. Nevertheless, the total gas purchase volume is expected to be significantly less than in early 2025, limiting potential increases in gas prices and allowing power costs to continue decreasing.
In April, wholesale peak power prices in Germany averaged about 72 euros per megawatt hour, halved from around 144 euros in February. Prices in the Netherlands and Poland have decreased similarly, while Spain's power costs are over 80% lower than their February peaks. In Italy, historically high prices have dropped by a third from their 2025 peak.
Further decreases in power prices are anticipated as solar output increases and floods the grid with surplus electricity. May 2024 marked the low for wholesale power prices in various countries, and similar lows are expected this year. If prices return to last May’s lows, costs in Germany might drop another 20%. However, current prices are already below the 2024 average, suggesting limited potential for further declines, especially considering potential additional costs for gas stock replenishment and grid upgrades.
Nonetheless, the significant drop in power costs from early 2025 peaks should offer some relief to energy consumers compared to the high bills experienced during winter.
Increased output from clean energy sources, especially solar farms, has also contributed to lower power costs, providing some relief for energy consumers and utilities after a costly start to the year.
European utilities had to ramp up gas-fired power production to the highest levels in three years from January to March 2025 due to a significant reduction in wind farm output, which fell 15% compared to the same quarter in 2024 due to below-average wind speeds. Since wind power typically accounts for about 15% of Europe’s electricity supply, utilities compensated for this shortfall by increasing natural gas plant output. Gas-fired electricity supply reached 332 terawatt hours (TWh) in the first quarter, 7% higher than in 2024 and the highest since 2022. This led to natural gas's share of electricity generation in Europe rising to nearly 26%, up from less than 24% the previous year, which increased regional gas prices by about 20% during the peak winter heating season.
As gas emerged as the primary power source during this period, utilities had to pay higher prices, passing some costs onto consumers, leading to increased strain on European households and businesses already facing weak economic growth and tariff fluctuations from the U.S. administration at the time.
With winter now concluded, gas-fired power production in Europe is expected to decline sharply. Historically, gas electricity output drops by 25% from March to June as heating demand ceases and solar production peaks. A similar trend in 2025 could further decrease gas prices and lower costs for power producers, although utilities will need to replenish stockpiles ahead of next winter, maintaining some gas purchases despite reduced generation. Nevertheless, the total gas purchase volume is expected to be significantly less than in early 2025, limiting potential increases in gas prices and allowing power costs to continue decreasing.
In April, wholesale peak power prices in Germany averaged about 72 euros per megawatt hour, halved from around 144 euros in February. Prices in the Netherlands and Poland have decreased similarly, while Spain's power costs are over 80% lower than their February peaks. In Italy, historically high prices have dropped by a third from their 2025 peak.
Further decreases in power prices are anticipated as solar output increases and floods the grid with surplus electricity. May 2024 marked the low for wholesale power prices in various countries, and similar lows are expected this year. If prices return to last May’s lows, costs in Germany might drop another 20%. However, current prices are already below the 2024 average, suggesting limited potential for further declines, especially considering potential additional costs for gas stock replenishment and grid upgrades.
Nonetheless, the significant drop in power costs from early 2025 peaks should offer some relief to energy consumers compared to the high bills experienced during winter.