Czech energy commodity prices continue to fall, defying analysts’ expectations

Wholesale prices of energy commodities continue to fall, while the impact on electricity prices is further amplified by the decline in the price of emission allowances (EUAs). The price has already fallen below 60 EUR/t CO2, a level at which allowances have not traded since March 2022. Lower demand linked to the warmer-than-average course of the winter season so far, combined with deteriorating economic forecasts for some EU countries, is also contributing to falling prices. Wholesale commodity prices are reflected in retail prices with a delay, but further declines can be expected in the foreseeable future.

Decline in natural gas prices

The price of natural gas for delivery in 2025 at the Czech VTP trading hub closed below 32.5 EUR/MWh at the end of last week. It is thus continuing its steady decline since October last year. Looking at the nearer term, it may come as a surprise that gas prices for March or April are even below 30 EUR/MWh.

The decline in natural gas prices for delivery next year was not reversed even by the report that Ukraine does not plan to extend the transit of Russian gas through its territory. The current agreement is valid until the end of this year. Historically, Ukraine has benefited economically from gas transit, which accounted for around 3 % of GDP.

Healthy natural gas storage levels

The mild temperatures seen so far during the winter season are working in the EU's favour. It has managed to maintain its storage levels at a very healthy level. This is further helped by lower energy consumption unrelated to actual temperatures. In other words, energy consumption adjusted for normal temperature data has also fallen by several percentage points.

Decline in electricity prices

Compared with natural gas, the decline in electricity prices has been amplified by the fall in the price of emission allowances. Last week, the price even fell below 58 EUR/t. This is linked to worsening economic growth forecasts for EU countries. The Czech National Bank (ČNB) revised its November forecast and cut its outlook for Czech GDP growth this year from 1.2 % to 0.6 %.

Economic activity affects energy consumption, which in turn affects emissions. However, forecasting the price of emission allowances is particularly difficult, and it is not uncommon for the opposite price trend to be expected.

The difficulty of forecasting prices is often criticised by energy organisations, as it directly affects electricity prices, which determine whether projects are economically viable or not. A higher allowance price, meanwhile, supports the development of renewable or zero-emission sources.