Renewables hot in Europe as Iran war drives up power prices

[VLORA/PARIS] As the Iran war disrupts global flows of oil and gas and energy prices skyrocket, the Drin River, which descends through the mountains of northern Albania, is acting as a kind of shield.

Swelled by winter rains and snowmelt, and dotted with hydroelectric dams built during communist times, the river’s power provides more than 90 per cent of the Balkan country’s electricity output, helping to keep wholesale prices in check.

Albania is an example of how countries with a higher renewables output have been protected from steep rises in electricity prices since the US and Israel attacked Iran on Feb 28, price comparisons from across Europe show.

Analysts said that this could help households, businesses and growth in those countries as the price impact trickles down to ordinary consumers in the coming months.

It could also bolster Europe’s green energy transition, which has been criticised for lacking urgency and has come under attack from the likes of US President Donald Trump.

Countries heavily reliant on oil and gas face steeper price rises, adding to inflationary pressure and increasing the chance of a global recession – a familiar worry for Europeans who weathered the energy crisis triggered by Russia’s invasion of Ukraine in 2022.

Satyam Singh, analyst at energy research firm Rystad, said that while the crisis is raising the regional price floor for everyone, the countries with the least flexibility and the greatest marginal dependence on imported fuels are seeing the strongest impact in volatility and peak pricing.

Power price differences emerge

Across the Adriatic Sea from Albania, Italy, which generates more than 40 per cent of its electricity from gas, has seen a more than 20 per cent rise in its benchmark wholesale contract since the war began. In gas-hungry Germany, the benchmark has risen over 15 per cent.

In contrast, the benchmark in France, which relies on nuclear energy for 70 per cent of its electricity production, has risen by less than half of Italy’s over the same period.

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In Spain, which has rapidly increased renewable output to nearly 60 per cent of total generation, prices have fallen. Albania also recorded lower average prices in March compared to last year, thanks to ample hydro capacity.

Gas-dependent countries including Italy, Germany and Greece all have some level of solar power production, but over-reliance on solar causes what is called the “duck curve”, where prices are low in the middle of the day but spike in the early morning and late afternoon.

Alessandro Armenia, a power analyst at commodities data and analytics firm Kpler in Paris, said that the goal for “most of these countries like Italy and Germany is to build a huge stack (of renewables and long-term storage) that offsets gas”.

“It’s going to be a big challenge.”

Meanwhile, coal-producing countries such as Poland and Serbia have also fared well, analysts said. In Greece, which has strong solar generation, the power grid operator wants a lignite-fired plant earmarked for closure to stay open for at least another year amid the Iran conflict.

Businesses, households feel the strain

Power price shocks for households are expected to be more muted than the jumps in wholesale costs seen for oil and gas, analysts said, as it can take months for these increases to work through the system.

The European ​Commission has developed plans to cut electricity taxes as it seeks to cushion the fallout from the war, although officials and analysts warned that state costs could balloon as a result.

Consumers already struggling with a rise in oil-based fuel prices are worried about dearer electricity.

In Cyprus, where households pay some of the highest electricity prices in the EU, the country’s dominant power provider sees prices rising as much as 20 per cent by August, in part because of its own duck curve.

When the Iran war erupted, fuel costs for Marios Georgiou, a machine operator at a printing works in Limassol, soared as much as 20 per cent, forcing him to quit one of his jobs and find alternative work closer to home. Electricity bills already cost him 200 euros (S$299) a month.

“I’ve got two jobs and I can barely break even,” said the father of two. “Everything is just going up.”

Georgiou is not alone.

Nico Vanni, 47, runs the La Nave bakery in Castiglion Fiorentino, Italy. The company uses about 2,000 litres of diesel a month on deliveries, and its ovens run on natural gas. Suppliers have already announced increases in the cost of yeast, paper and plastic – and that is before any power price increases.

“We can hold out for a few months, but not for long; the real risk is that we will have to intervene on staffing,” he said.

Old dams help Albania, but for how long?

In Albania, residents near the towering Vau i Dejes hydroelectric dam joke that hydropower is the only positive legacy of the country’s decades of communist rule.

“Albania’s heavy reliance on renewable energy, particularly hydropower, has played a crucial role in cushioning the country from the worst effects of the crisis,” the country’s energy ministry said in a statement, although it acknowledged that it was not immune.

The country still imports power when demand peaks, and consumers are protected by government price subsidies.

“The Iran conflict has increased pressure behind the scenes, particularly on public finances,” the ministry said. “The system is holding steady on the surface, while the real strain is accumulating underneath.” REUTERS