Sat, Jul 16, 2022 page9

• Europe heat wave bad for energy prices, but drought is worse

  With rainfall scarce across the continent, low river levels are hampering electricity generation at hydro, coal and nuclear plants

  • By Javier Blas / Bloomberg Opinion
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  Europe is sweltering under a heat wave that has pushed temperatures above 40°C in several countries. As households and businesses turn on their air conditioners, electricity demand has jumped and wholesale power prices have surged, but far more concerning — and far less discussed — is the drought spreading from Germany to Portugal that has the potential to worsen the energy crisis for a lot longer than the current hot spell.

  The drought is a gift from nature for Russian President Vladimir Putin, making Europe even more reliant on Russian natural gas at a time when the Kremlin is reducing supply sharply.

  Last winter, the weather favored Europe, as unseasonably high temperatures during the Christmas holidays cut demand for energy. Now, the lack of rain is working against the continent.

  That winter bonus came at a price, with the Alps, the Pyrenees and other mountain ranges getting less snow than usual. Water levels in the Rhine dropped precipitously by late winter and early spring, but the snow melt in May and June last year masked the crisis for a while. Since then, large swathes of Europe have received very little rain.

  Now the problems are re-emerging and are widespread across the continent. The list of European drought-stricken rivers is long, including the Rhine, the Ebro, the Rhone and the Po, among others.

  The drought matters for electricity beyond hydropower generation. Coal-fired power stations in Germany rely on waterways such as the Rhine to ship in their fuel via barges. French nuclear plants rely on rivers for cooling. If hydropower, coal and nuclear production is disrupted, all Europe has left is wind and solar — both subject also to the vagaries of the weather — and natural gas.

  The water level at Kaub, a picturesque town south of Cologne on the Rhine, is paradigmatic of the crisis. On Tuesday, the gauge stood at 104cm, the lowest at this time of the year in at least 15 years. On average, the river typically flows at a level of more than 2m through the town in July. Even in 2018, when the Rhine suffered its worst drought in a century, the water level at Kaub was slightly higher it is now.

  Upriver, at the Maximiliansau gauge, the water has dropped to its lowest seasonal level since at least 2005, endangering shipping to French and Swiss industrial and commercial hubs, including Strasbourg, Mulhouse and Basel. The big drop upstream signals that the middle and lower Rhine will soon be even drier.

  The problems in the Rhine are well documented as it is dotted by dozens of metering stations that allow investors to gauge the water level by the minute, but multiple waterways in Europe are suffering equally, even if they generate fewer headlines. For example, the Po, the longest river in Italy, is enduring its worst drought in 70 years.

  The first casualty is hydropower generation, forcing the likes of Spain and Italy to burn more gas at a time when every cubic meter is expensive. Seasonally, Spanish hydro generation is running at the second-lowest level in 20 years. In France, hydro generation is the weakest in a decade. In a typical year, hydropower is the fourth-biggest source of electricity across the EU, after gas, nuclear and wind, generating nearly 14 percent of all the electricity.

  Worse could come. Electricite de France SA, which runs the biggest fleet of nuclear power stations in Europe, has warned it is likely to trim output at some atomic plants this summer as the drought reduces the amount of river water available for cooling. The French company, which has closed dozens of reactors to check their welding, was forced last month to curb output at its Saint-Alban nuclear plant near Lyon after the Rhone River level dropped.

  Another five Electricite de France nuclear plants are at risk, the company said last week.

  For now, coal-fired power stations appear well stocked, having used the period of high water during the spring snow melt to replenish their inventories.

  However, they are not immune. The Karlsruhe generator in Germany is already reporting resupply issues, suggesting the problems will re-emerge sooner rather than later, potentially hitting Germany at the worst possible time. The Rhine is the cheapest and easiest way to transport coal from Rotterdam into southern Germany.

  So when gauging what happens next in the energy conflict between Europe and Russia, keep an eye on the sky and pray for rain.

  Javier Blas is a Bloomberg Opinion columnist covering energy and commodities, a former reporter for Bloomberg News and commodities editor at the Financial Times.
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