Highlights from our Market Expert View Summer Edition

CO2 market affected by lack of industrial recovery 

Power and carbon-intensive sectors covered by EU ETS are likely to continue struggling this year, while growth in emerging technologies like electric vehicles and green hydrogen will remain slow, hence a rather sideways-moving power demand is expected. As this happens while the net inflow of renewables capacity remains healthy, 2025 is clearly heading towards being another year with emissions decreases.  

Looking at gas forward market price developments and the inclusion of maritime emissions into the trading scheme, these are factors that could both prove marginally bearish.  

For 2025, just like last year, we assess the sum of allowances from free allocations to industries and from auctions to exceed compliant emissions.  

We expect the CO2 market to gradually absorb this, expecting prices towards the year-end to fall slightly from recent levels.  

Gas risk premium slashed 

With the ceasefire deal between Iran and Israel, €5 worth of risk premium in the gas market was instantly slashed. Gas prices in the Netherlands (TTF) are currently trading at around €36/MWh. 

No one is saying that risk is or will be completely gone from the gas market. But the market will increasingly return to focus more on fundamentals, where LNG supply is arguably the main driver. LNG supply to Europe has been strong this year, and this trend is expected to continue as new supply is coming online, mainly from export terminals in the US. But increased competition from Asia could be in the cards - especially if prices move further down. This is likely to limit the downside potential going forward. 

Heat waves ahead: What it means for Europe’s hydropower supply 

As Europe heads into another summer shaped by heat, weather patterns and water availability are once again in sharp focus. Soil moisture has recovered in parts of Central Europe but continues to decline in Iberia and Southeast Europe. Most Alpine snow has melted, and river levels in the Rhine remain healthy. 

Summer weather forecasts point to significantly above-normal temperatures across much of Europe, particularly in July and August, with a high potential for heatwaves. Precipitation is expected to be below normal in Central and Southeast Europe. 

Hydrologically, Central Western Europe is facing low snow and groundwater levels and continued below-normal hydro production. Southeast Europe is hot and dry, with falling reservoir levels. In contrast, Iberia remains resilient with high reservoir levels following a wet year, although recent production has returned to normal. Northern Italy shows slightly below-normal trends. These patterns will shape the regional energy balance through summer and into autumn. 

Flow-based: How the markets can fluctuate – Q1 2025 vs. Q1 2024 

Frank Boerman from TenneT highlighted how grid constraints in the flow-based market can shift significantly over time - comparing Q1 2025 to Q1 2024. One key takeaway was the increased presence of RTE (the French TSO) in the list of active constraints, driven by higher forecasted flows from outside the Core capacity calculation region. These flows - likely due to stronger west–east exports to Italy and Switzerland - align with newly monitored network elements near those borders. While these are legitimate process steps to take, this development shows how southern European flows can impact the Core region. The upcoming merger of Core and Italy North CCR into the new Central CCR will improve integration and managing these flows. Frank shares further detail in this blog post.

Flows in Continental Europe 

In the first half of 2025, Continental Europe experienced shifts in commercial electricity flows compared to the same period in 2024. Italy saw increased imports from France, while inflows from Switzerland, Austria, and Greece declined. June 2025 recorded higher commercial flows between France and Italy than July 2024. However, similar to last year, spring and summer weekends continue to show reduced imports at the French-Italian border.  

In Central and Southeastern Europe, notable changes were also observed. June 2025 showed higher MaxBex values at the German-Polish and Polish-Slovakian borders compared to June 2024. Ukrainian imports declined, while MAVIR activated Individual Validation Actions and congestion increased at Austria’s borders. 

German power market 

Developments in the German power market continue to be impacted by commodities like gas, carbon, and coal. A strong rise in costs for thermal power generation supported the forward market during the second quarter. Geopolitical tensions in Middle East and Ukraine create uncertainty and volatility.  

Fundamentally, power demand in Germany remains below last year and long-term historical average. Behind-the-meter solar reduces demand from the grid, and industrial power demand has declined significantly. While wind generation showed some signs of recovery from below-normal levels, SPV continues to break record-high production levels almost every week. Consequently, negative prices and hours of negative residual demand are increasing. French nuclear generation shows strong modulation and correlates with spot prices. Hot weather can be a bullish risk if nuclear availability is limited. 

Power price scenarios play an important role in assessing what happens in a volatile future. Demand, weather or commodity scenarios are helpful tools to create a range of possible price forecasts and allow a better view on risks. Our price forecast for next year from our mid-term model followed the market prices with some discount. Demand development, commodity markets and renewable power generation are key areas to watch out for this summer. 

Do we really need more power in the Nordics? 

Based on the latest trends from people in the street, politicians and various government decisions, we sense lower ambitions to work towards climate goals. This also sets back electrification and the expected increase in consumption. If we don’t commit more to the climate goals in the next years, we might see postponed growth in consumption, and the power balance in the Nordics will stay healthy, and prices will be moderate - even though we eliminate a lot of the investment in solar, wind and nuclear.  

We are facing a dilemma where postponing electrification will lower prices and remove the mantra that we need a lot of new renewable generation investments. The climate goals will not be met.    

Long-run marginal cost and capture prices in Nordic price areas 

The price outlook for power is weakening as both consumption and production growth slow, and fewer projects approach commissioning. As a result, captured prices for wind and solar are dropping - significantly. In many regions, expected captured prices now sit below our estimated long-run marginal cost (LRMC), making it increasingly difficult for new projects to reach final investment decisions. Without stronger government support or risk mitigation measures, such as low-interest loans, projects might not even make it to the discussion table. However, there’s a silver lining: lower prices could stimulate demand, shifting the power balance and creating room for more non-carbon energy sources. Let’s see how the market responds. 

Medium-term outlook on Nordic prices and experiences from flow-based market coupling 

For the Nordics, our Q3 forecast is bearish for the southern bidding zones in Norway and Sweden compared to market prices, and slightly bullish for the northern bidding zones in Q4 and 2026. Experiences from flow-based market coupling show strong north-south flows in Norway and Sweden, and east-west-flows through SE3. It is not entirely clear how much of the north-south effect can be attributed to the flow-based methodology and how much that can be attributed to hydrology.