“Strap in for a major rally, Draghi, Dunkelflaute, negative prices & SMRs”
In today’s article we set out 10 energy market surprises that caught our attention in 2024 as well as revisiting the surprises we flagged in Jan.
10 surprises from 2024
1. Mario Draghi’s €800bn annual investment challenge, with an energy focus
Draghi’s ‘Future of European Competitiveness’ report threw down a key challenge to the EU: accelerate investment in the energy transition but focus on balancing 3 goals (i) decarbonisation (ii) energy independence & (iii) industrial competitiveness.
2.Sustained gas & power price rally, despite weak demand
Consensus entering 2024 was for a sharp recession to hit energy prices – although we flagged the exact opposite in Jan (see below). A tight gas market saw gas & power prices double from Mar to Dec, with steep forward curve backwardations opening up (as shown in Chart 1).
3. Negative power prices surged across Europe
RES penetration in Europe has started to reach a level where marginal power prices are regularly being set by wind & solar assets, with low or negative bid prices. This has been most pronounced in the German power market where incidence of negative prices soared in 2024 (Chart 2).
4. Counter price signal cross-border power flows
Power usually flows across borders based on price signals i.e. from lowest to highest priced markets across interconnectors. The incidence of counter price signal flows across Europe rose after flow based market coupling was launched (Jun 2022). It was a popular view that this would start to recede. However counter price signal flows continued to increase in 2024 with RES penetration, with some important knock-on impacts on asset & portfolio value.
5. TTF flipped JKM
The gas price rally we flagged above (2.) was driven by strong Asian LNG demand in Q1 & Q2. However the latest leg higher in this rally has been led by the European gas market. Quicker than expected storage inventory draw down in Nov & Dec has has a knock-on impact across the front 2 years of the TTF curve given the impact of storage mandates. This saw the TTF curve rally to a premium over JKM in Nov, before easing back a little in Dec. Prices are being set by Europe competing directly with Asia for marginal LNG cargoes.
6. SMR nuclear renaissance
This surprise maps directly onto one of the 5 we flagged in Jan 2024 – European realisation of the role nuclear can play to support the energy transition has moved fast in 2024. Many countries are actively planning (or at least debating) investment in new nuclear. Momentum is being supported by strong US focus & progress on nuclear R&D e.g.as illustrated by the more than 600% increase in Nuscale’s share price this year (Chart 3).
7. Growing China energy transition momentum
Chinese energy transition momentum continued to accelerate this year. China now completely dominates global solar & battery cell production supply chains, including key raw materials. Chinese market share growth in both EV and ICE vehicle production surged in 2024 (at the expense of Europe). Low carbon generation capacity volumes are also accelerating e.g. more than 200GW of solar deployed & 11 new nuclear plants approved this year.
8. Diesel to LNG fuel switching demand
Related to the previous surprise, China significantly increased adoption of LNG in road transport, particularly for heavy-duty trucks. LNG truck sales increased by more than 100% in 2024, This led to a notable reduction in diesel consumption. Cost-effectiveness of LNG, with prices significantly lower than diesel, has been a major factor in this transition.
9. H2 reality check in Europe
2024 has seen some FIDs of both industrial cluster & offshore wind based hydrogen projects. However 2024 has been disappointing vs expectations in terms of policy support clarity to drive broader scaling. Part of the challenge is scaling back H2 ambitions to sensible potential use cases, given very high costs e.g. focusing on replacing grey hydrogen & high value industrial use cases vs dreaming about running CCGTs on H2.
10. German ‘Dunkelflaute’ challenges
Extended periods of low wind and solar output, known as ‘Dunkelflaute’ caused major challenges for the German power market this year. These highlighted Germany’s dependence on fossil fuel fired flexible thermal capacity to main security of supply. It brings into focus Germany’s requirement to stimulate investment in low carbon flex in order to enable decarbonisation while maintaining security of supply.
Recapping our surprises from 2024
As has become a more than decade long tradition, we set out 5 potential surprises in early Jan 2024.
We’ll be back in mid-January with our 5 surprises for 2025 which we’re working on now. In the meantime we’ll continue to publish regular snapshot articles.
Let’s finish with an update on Timera happenings this year.
Timera year end news
We finish the year with a round up of interesting Timera client work this year, that provides an insight into where flex asset investors and owners are focusing:
- Our Team: We continue to expand our team with industry leading energy analysts. We’ve also upsized our office & meeting room spaces at our London HQ (30 Crown Place).
- Power offtake: European flex asset offtake & route to market contract work has been a key focus for us in 2024. We’ve run multiple BESS offtake contract RfP, structuring & negotiation processes to support investors. We have also continued to advise on gas plant offtake contracting & hedging.
- DE, NL & BE BESS: We have seen a big increase in investment projects across these 3 markets. This has included supporting both debt & equity investors e.g. Kyon & Ju:niz transactions in Germany & our support for Infravia’s acquisition of GIGA Storage (NL & BE). More in our webinar on DE & NL BESS.
- Italian power & BESS: We launched a new zonal Italian power market model to support our clients investing in Italian power assets. We’ve seen strong client focus on MACSE & Capacity Market auctions into 2025. More details in our latest IT BESS webinar.
- Subscription services: We have seen strong demand for our GB & DE BESS quarterly investor support services. Our quarterly global gas subscription service client base has also more than doubled this year. In Q4 we have also launched a specific Italian BESS investor support service.
- Gas-fired generation: We have seen a resurgence in CCGT & gas peaker related work this year, covering asset valuation, offtake contracting & hedging strategies. There has also been stronger interest in gas peakers, supported by higher levels of price volatility across the last two years.
- LNG Bridge: Our LNG Bridge portfolio model continues to be implemented by leading LNG companies as a portfolio valuation & optimisation modelling solution. Our LNG Bridge client base now covers more than 25% of global physical cargo volumes.
- Midstream gas: Regas, pipeline & storage asset analysis & valuation has picked up this year. We also continue to work with asset owners on contracting & monetisation strategies.
- LNG portfolios: We have seen a strong increase in work supporting large LNG portfolios value, acquire & manage assets and SPAs (e.g. US export deals, European regas & Asian sales contracts). See our latest views on evolution of LNG & gas market in our recent webinar.
- Transactions: We continue to be a leading provider of buy-side market & commercial due diligence support for investors. In 2024 this has included supporting multiple client acquisitions & bids for battery portfolios in GB, DE, IT & Benelux as well as debt financing of flex power assets. We have also supported several large LNG transaction processes.
The common theme across all of this work is the flexibility required to support the energy transition.
