Middle East Tensions Reignite Price Rallies in European Energy Markets

Renewed disruption to global LNG flows pushed European gas and power prices to fresh highs in late July. While the rally has supported PPA prices, long-term contracts have responded far more moderately versus the 2022 energy crisis, whereas BESS revenues have benefited from greater volatility.

European gas and power prices reached fresh highs in July as renewed escalation in the Middle East conflict, severely disrupting transit and continuing to constrain global LNG supply flows. Before the conflict, around 20% of global LNG trade passed through the strait. As a result, European gas prices surged once more, with the Dutch TTF Winter ’26 contract reaching 60.8 EUR/MWh, a three-year high. Front-year contracts followed, with the Dutch TTF Cal ’27 contract peaking at 45.6 EUR/MWh on 24 July, with the average July settlement price up 10% from the Q2 2026 average.

Although the rally has since eased, prices remain highly sensitive to developments in the Middle East. The market is awaiting clearer evidence of tangible progress in negotiations between the United States and Iran. The latest increase has lifted gas prices back toward levels observed in March, when the conflict first triggered a rally across European gas and power markets.

Given the strong link between gas and power prices in several European markets, power contracts have tracked the rally. The German Cal ’27 baseload power futures contract increased by 20% throughout July, breaching 100 EUR/MWh and peaking at 111.4 EUR/MWh on 24 July, up 12.1 EUR/MWh from the highs observed at the start of the conflict.

The renewed rally has also heightened concerns over Europe’s gas security ahead of winter. EU gas storage facilities were approximately 56% full at the end of July, around 15 percentage points below the five-year average for the same period despite continued injections, leaving the market increasingly exposed to further supply disruptions.

The increase in forward gas and power prices has naturally supported renewable PPA pricing. However, for long-term contracts, the response has been considerably more muted than during the 2022 energy crisis. .

Pexapark’s one-year Pay-as-produced (PAP) solar PPA Fair Value in Germany increased by 15.4% during July to 50.0 EUR/MWh, while ten-year contracts rose by only 3.6% to 36.6 EUR/MWh. The impact was even more limited in markets with lower gas dependence, including France and Spain.

The more moderate response reflects the growing structural decoupling between wholesale baseload prices and renewable capture prices. As solar penetration continues to increase across Europe, buyers increasingly account for future capture price erosion when valuing long-term PPAs. As a result, higher forward power prices now translate into a much smaller increase in long-term PPA Fair Values than during previous energy market shocks.

Although the renewed volatility reinforces the value of long-term price hedging for corporate buyers, its impact on long-term PPA pricing has been significantly weaker than in 2022.

BESS assets are benefiting more directly from the current market environment. Higher gas prices have increased both wholesale price levels and intraday volatility, widening arbitrage spreads and improving merchant revenue opportunities.

In Germany, where lower gas prices had compressed arbitrage revenues at the start of the year, the recent rally has begun to reverse that trend. While ancillary services remain a key revenue stream, stronger wholesale spreads have improved the outlook for merchant BESS projects.

Pexapark’s Daily BESS Reference Prices1 have also strengthened, supported by elevated market volatility stemming from the Middle East conflict and tighter system conditions across European power markets. The Daily Reference Price for a seven-year tolling agreement with a 2028 COD in Germany ended July above 102.0 EUR/MW/year, 5.2% higher than pre-conflict levels in late February. TB2 Reference Prices, which are particularly sensitive to expectations for day-ahead arbitrage revenues, have also increased as market participants price in stronger wholesale volatility.

Note: (1) The Daily Reference Price reflects the risk-adjusted Fair Value of standard FPA contracts. It is derived from live bid prices collected directly from utilities and traders active in the BESS offtake market. The Reference Prices are updated daily based on Pexapark’s Price Forward Curves.

Are you interested in unlocking more market insights?