Ukraine Talks Lower Germany's Power Prices as Natural Gas Falls

Germany’s year-ahead power futures prices fell this week to the lowest level since the beginning of the year amid falling European natural gas prices as talks on a peace deal in Ukraine began.

In recent months, Germany has become more dependent on fossil fuel-powered generation amid low wind speeds that have curbed wind power output.

The U.S.-Russia negotiations on a peace agreement in Ukraine, which began on Tuesday in Saudi Arabia, have been depressing Europe’s benchmark gas prices. Dutch TTF Natural Gas Futures, the benchmark for Europe’s gas trading, have fallen in recent days, amid speculation of possible sanctions relief for Russia if negotiations are successful.

The German power futures for 2026 delivery have slumped by 14% since early last week, per data from European Energy Exchange cited by Bloomberg.

Germany's year-ahead electricity prices haven't been this low since the beginning of January. The premium of the German prices to French year-ahead prices has also narrowed in recent days.

At the end of 2024 and in most of January and the first half of February, Germany’s power prices were rallying amid low wind speeds and increased dependence on natural gas in power generation. European gas prices also jumped earlier this year as Europe’s gas storage levels are depleting faster than last year and the latest five-year average.

Last month, Germany's electricity generation from oil surged to the highest since at least 2017 while gas-fired output soared to the highest in two years, as European power utilities prepared for a slump in wind energy.

Germany has been experiencing lower-than-normal winds for four months, which have reduced wind power generation, boosting electricity prices and the reliance on fossil fuels.

Since early November, the so-called ‘Dunkelflaute’, German for “dark wind lull”, has often resulted in wind farms generating only a fraction of their nameplate capacity, leading to day-ahead electricity prices for peak demand hours to high levels not seen since the peak energy crisis in 2022.