Julien Holtz, Emerging Market Strategist, and Nadia Gharbi, Senior Economist, at Pictet Wealth Management.

• Electricity production is critical to power Europe’s modern economy. The EU’s 27 member states currently produce around ~2,600 TWh per annum.
• Nuclear power remains the main single source of electricity in the EU (27% of electricity generated), although renewables collectively account for over a third and their share is rising fast.
• European power grids have become increasingly interconnected over time, bringing significant benefits in terms of price and supply stability.
• Europe’s electricity supplies will face a rare test in 2023 due to several unconnected factors, including low hydro levels in Nordic countries, maintenance problems at France’s ageing nuclear power plants and the disruption of pipeline gas supplies from Russia.
• Indeed, the way Europe’s electricity market is currently designed means the war in Ukraine has also contributed to a general increase in electricity prices through gas prices.
• Uncontrolled blackouts appear unlikely in Europe this winter, but limited load shedding meant to balance supply and demand cannot be ruled out, notably in France and Ireland.
• The price of electricity is expected to remain high as Europe continues to wean itself off Russian gas and competes for liquified natural gas on international spot markets.
• Over the medium term, higher prices could lead to a loss of competitiveness for the European industry if no alternative energy sources are found.
• More positively, the current situation could lead to greater electricity efficiency and speed up the expansion of renewable power.