Another Power Crisis

The Iran war has reignited volatility across European power markets, pushing electricity prices higher and testing the resilience of the continent’s energy transition. Germany, while better positioned than during the 2022 crisis, remains heavily dependent on gas as a backup to wind and solar, and policymakers are still undecided about the timing and price thresholds for refilling strategic gas storage. In the Nordics, hydro reservoirs are still in deficit, yet abundant wind‑solar generation cushions the region from the worst price spikes seen in southern bidding zones.

Amid the turbulence, flexible assets—especially battery storage—are capturing unprecedented revenue streams. Intraday and day‑ahead price spreads have more than doubled since the conflict began, with some contracts in Germany, the Netherlands and Poland exceeding 200 euros per megawatt hour (roughly $218/MWh). Battery operators are capitalising on these gaps, selling power at peak prices driven by expensive gas‑fired generation and buying low during off‑peak periods. Ancillary services markets are also rewarding batteries with higher capacity fees as fossil plants lose merit‑order priority, creating a multi‑layered profit model for flexible resources across Europe.

Policy responses are shaping the next phase of market dynamics. Governments debate the reopening of legacy gas fields, the pace of interconnector upgrades, and the role of new nuclear or small modular reactors in the Nordics. The UK’s net‑zero agenda faces a crossroads, with price caps and public sentiment influencing future drilling licences. Meanwhile, the Netherlands has closed the Groningen field permanently, underscoring a shift away from domestic gas. These strategic choices will determine whether Europe can absorb external shocks while accelerating its renewable‑first future.