Why haven’t higher gas prices hit German power prices yet?

The Traditional Pricing Logic 

In Germany, gas is often the marginal unit setting power prices, so higher gas and EUA prices should normally lift electricity prices. Under typical market conditions, German power prices in 2026 would therefore already be trading materially higher, but that repricing has not yet occurred. 

German spot power prices are down year-on-year, with a noticeably softer distribution. A Welch t-test confirms the move is statistically significant (p-value 0.0007). At the same time, gas consumption has increased and EUA prices have risen from 70.9 to 75.2 EUR/t. Under normal market conditions, those input costs would already be visible in German spot power prices, yet they remain subdued.  

Forward markets, however, are telling a different story. Summer contracts continue to price materially higher, suggesting the market still expects delayed pass-through from gas and carbon costs into power pricing. The result is a growing disconnect between current spot dynamics and forward market expectations. 

The main factor driving this is that utilities are still sitting on legacy hedges for both gas input and power output, locking in earlier spark spreads. Gas procurement is staggered and power is largely forward-sold, so a big share of 2026 generation is not priced based on current spot gas. That creates a lag where rising prompt gas prices haven’t yet fed through into realised power costs or spot clearing. 

First factor - hedging 

Utilities hedge both fuel inputs and power outputs months or quarters ahead, typically by buying gas forwards and selling power forwards to lock in spark spreads. As a result, higher prompt gas prices do not immediately feed through into spot electricity prices because much of the generation stack is still running on legacy fuel economics. The futures market may therefore be pricing the moment when these hedges roll off and utilities are forced to reprice power against higher gas costs. 

At the same time, renewable generation is further suppressing the immediate pass-through into spot prices. Strong renewable output reduces the frequency with which gas-fired plants set the marginal electricity price, weakening the direct link between higher gas costs and spot power pricing. The result is a market where gas is still expensive; but power prices are not clearing solely based on gas economics. 

Second factor – strong renewable output / residual load compression 

Renewable overperformance materially reduced residual load in early 2026, weakening the transmission of higher gas and carbon costs into spot power prices. 

Between 1 January and 19 May, residual load fell by roughly 9% year-on-year despite slightly higher electricity demand, as stronger renewable generation absorbed a larger share of total consumption. At the same time, net imports weakened significantly versus Q1 2025, reflecting improved domestic renewable output. 

As a result, thermal generation, particularly gas-fired plants, was required less frequently to balance the system and therefore set the marginal power price less often. This helped cap average spot power prices despite a structurally firmer fuel and carbon environment. 

That said, gas consumption has not fallen, in fact it has increased, from 113,996 GWh to 120,175 GWh over the same period.  

The key takeaway is straightforward: renewables are compressing residual load and reducing the frequency with which gas sets the marginal power price. Gas remains essential for balancing and system flexibility, but is not always setting the marginal price at the moment.

The futures curve is already telling a different story. On EEX, German power contracts are sharply bid across the summer strip: June-26 is up +29.8% YTD, July-26 +25.97%, and August-26 +23.70%, while Cal-27 is also firm at +11.40% YTD.  

This suggests the market is increasingly pricing a transition away from currently hedged, legacy-cost spot dynamics into a tighter marginal system later in the year. In other words, the curve is already positioning for the point where utility hedges roll off and replacement power is priced off higher prevailing gas and carbon inputs. Summer balancing risk is increasingly back in focus.

Conclusion and what we can expect in the near future 

Overall, these factors create a market where input costs have clearly risen, but the pricing mechanism has not yet fully adjusted. The adjustment has clearly not disappeared, but it has rather been deferred. 

That said, the extent to which spot catches up with the futures curve will depend heavily on the hedging profiles of both utilities and across countries overall. Where gas is more frequently the marginal price setter, we would expect a more pronounced repricing into spot power over the coming months, particularly into the Winter 2026–27 period.  

However, the pass-through may be more gradual in markets with deeper forward liquidity and longer hedging tenors, such as Germany, the UK and the Netherlands. Markets with shorter hedging horizons or greater prompt-market exposure, including parts of Southern and Eastern Europe, could experience sharper short-term repricing episodes.