The Iran situation triggers Germany's energy crisis, with May electricity prices soaring to four times those of France, setting a historic price gap.

A natural gas supply disruption triggered by the Iran war is pushing the longstanding energy-structure differences between Germany and France toward a new critical point; the two countries’ electricity price gap has widened to a record high.

On March 31, according to Bloomberg, the price of Germany’s May power contract is currently about four times that of France, setting a record-high multiple. As of Tuesday, Germany’s May power contract on the European Energy Exchange (EEX) was at €86.80 per megawatt-hour, while France’s contract for the same period was only €22.06.

This price gap is delivering a direct blow to European energy-market investors and industrial power users, and it is also putting greater pressure on the German government, forcing it to reexamine its energy transition pathway.

Long-standing structural divergence, accelerated and amplified by geopolitical conflicts

The longstanding electricity price difference between the German and French power markets is rooted in sharply different generation mixes. France’s power supply is mainly driven by nuclear energy, providing stable supply and lower costs; Germany, meanwhile, shut down all nuclear power plants on its soil in 2023. Although renewables account for a higher share, its dependence on fossil fuels has risen accordingly.

During nighttime periods when wind and solar output are insufficient, Germany has to rely on coal- or gas-fired power plants to make up for the supply shortfall, thereby pushing up electricity prices. Yiannis Papamikrouleas, trading manager at DEPA Commercial SA, said: “This trend has existed for a long time. The current geopolitical premium is accelerating it and amplifying it.”

Germany plans to restart coal power to ease supply pressure

Facing a surge in natural gas prices, German power companies have begun switching some generation sources from imported natural gas to coal to control energy costs. However, the room to adjust is clearly limited: Germany previously closed a large number of coal-fired power units under its coal phase-out policy framework.

As Bloomberg reported earlier, the German government is considering bringing some idle coal-fired standby power units back online, and even reactivating units that have already been decommissioned, to relieve current supply pressure.

William Peck, a senior power analyst at Energy Aspects Ltd, said that uncertainty around France’s electricity export outlook is another important factor widening the price gap between the two countries. He noted that in past spring periods, France’s grid operator RTE had cut cross-border power flows due to capacity constraints in the eastern grid.

On the one hand, such limitations lower electricity prices within France because surplus power cannot be sold abroad; on the other hand, they raise electricity prices in neighboring countries, creating a double-layered effect on countries such as Germany.

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