Heatwaves expose wind drought risk as Europe's power prices swing 29% in a day
Summer heat and low wind speeds are forcing power buyers toward firmer, longer PPAs while short-term prices spike to extremes.
Germany's day-ahead electricity prices soared 29% on Wednesday (2026-05-27) as a heatwave across Europe boosted cooling demand while low wind speeds cut wind power generation, according to data cited by Reuters. The move came as LSEG data showed wind expected to supply just 4.4 GW of electricity days later, down from an estimated 9.7 GW at the peak of the event.2
That volatility is now reshaping how industrial offtakers buy power. Heatwave-driven price swings have pushed offtakers toward clean energy power purchase agreements of 5-10 years and storage-backed structures to hedge energy costs, experts told Montel. The shift marks a clear change from shorter-duration contracts that had been the norm.6
The mechanism is straightforward. Heatwaves lift cooling demand just as high pressure systems suppress wind speeds, cutting the two flexible resources grids have come to depend on. When that happens, thermal generation must fill the gap at short notice, and prices reflect the scramble. In Germany, expected load from non-renewable power sources jumped by 8.2 GW over the same period.2
Italy shows how far this can stretch. Traders and analysts told Montel in the week of 2026-07-06 that evening power prices could reach as high as EUR 500/MWh in coming weeks if forecast heatwaves coincide with import losses, low wind and fading solar output. Peaks of EUR 300-500/MWh were flagged as plausible.5
The pattern is not confined to Europe. Australia's main grid recorded its worst one-day wind drought in more than two years over the weekend of 2026-06-21, triggering a series of price spikes in South Australia and Tasmania. David Osmond, principal wind engineer at WindLab, called it the worst 1-day wind drought in over two years on the grid.3
Yet the Australian event exposed a specific weakness. Despite another period of A$20,000/MWh prices, relatively little battery capacity was able to respond, Osmond noted. The state with the highest penetration of renewables remains short of the storage needed to smooth over wind droughts, and the market paid the price.3
WindLab's assessment of the same event included a notable counterpoint. Solar generation held up well, so the one-day VRE total of 105 GWh was significantly better than during the severe drought events of the past. The system was stressed, but not as badly as it could have been.3
The longer-term picture complicates the trading view. German wind power generation jumped 27% in the first quarter of 2026 from a year earlier, analysis from the International Economic Forum for Renewable Energies showed. Germany added an estimated 5 GW of wind turbines last year, and wind speeds were more favorable early this year than in the first half of 2025.2
That capacity growth pushed Germany's power prices down 8.9% in the first half of the year. The sharp increase in wind generation has significantly eased the electricity market, but summer weeks still produce the violent spikes that capacity additions cannot smooth out.2
Veteran market observers had flagged this risk months ago. Back in May, experts warned Montel that heightened volatility in the European power market would face further pressure from gas uncertainty and the prospect of a summer heatwave amplified by El Nino, with gas remaining the dominant driver of marginal power prices.1
The US provides a different baseline. Wholesale power prices there will average $45/MWh this summer, down $4 from last year, the EIA said on Thursday (2026-07-02), largely reflecting lower gas costs delivered to power plants. But household bills are still expected to jump 10.5% as cooling demand hits records, a reminder that wholesale relief does not automatically reach consumers.7
Europe has just recorded its hottest June on record, with climate attribution pointing to reduced winter snow and sea ice melt as aggravating factors. If those conditions persist through August, the wind drought episodes that triggered May's price spike become a recurring feature rather than a one-off event. Italian prices heading toward EUR 500 would test how much firm, long-term PPA volume the market can actually absorb at those levels.4