Save for later Print Download Share LinkedIn Twitter Skyrocketing power prices are creating massive headaches for politicians across Europe. Electricity bills had already been rising to pay for charges including renewable subsidies and grid upgrades. Consumers now face a fresh set of increases to compensate suppliers for rising gas, coal and carbon prices. Ironically — in light of Europe's push for carbon neutrality — this more expensive electricity is dirtier. High gas prices have spurred generators with mixed portfolios to switch back to coal and lignite as it's comparatively cheaper to generate power from coal, despite the record cost of EU carbon emissions allowances.Natural gas prices have soared as the market has become tighter, while carbon prices have increased on the back of stricter EU cap-and-trade rules. Power prices have also been inflated by relatively high coal prices, and low output of wind, solar and hydropower in some markets. High prices can become an election issue if they bite too hard and for too long. With the Northern Hemisphere now facing a winter where electricity looks set to remain expensive unless gas becomes a lot cheaper — which seems unlikely — it's little wonder that European politicians are talking about intervention.In major LNG importer Spain, policymakers have proposed a shock measure to make the country's four main generators, Iberdrola, Endesa, Naturgy and EDP, auction off some generation volumes to small players in the retail sector and industrial customers. They also plan to limit generator profits, cap gas prices and cut taxes in a bid to lower prices for end-users.Other EU countries may follow suit and intervene if power prices become politically unsustainable. The fear is they could fuel inflation and hamper economic recovery in states still struggling to recover from Covid-19.Commodity Price JumpsSpanish officials hope the auction price will be lower than wholesale electricity prices, which hit a new record high last week. They settled above €152 ($179) per megawatt hour for baseload day-ahead supply — three times higher than normal for this time of year — heavily influenced by natural gas, the marginal price setter in the country.Day-ahead baseload power prices in Germany, France, Belgium, Austria and the Netherlands hit nearly €140/MWh last week. They were even higher in Portugal and Italy, approaching the levels seen in Spain. This is roughly three times higher than normal. Prices of other commodities are also soaring. Gas prices on the Dutch TTF hub, Europe's de facto benchmark, hit €56.58/MWh ($19.92 per million Btu) last week, up from $4.42/MMBtu a year ago, and the forward monthly curve is priced near this level until April 2022. Prices on Italy's PSV have jumped from $5.09/MMBtu to $19.13/MMBtu over the same period, and on Germany's THE from $4.65/MMBtu to $19.45/MMBtu. There have been similar increases in other Northwest European gas markets, including the UK. Benchmark API2 coal futures prices were meanwhile trading at nearly $169 per ton last week versus $59.40/ton this time last year. Outlook for GasPrompt gas prices will likely remain high in coming weeks as European buyers scramble to refill depleted inventories before the Northern Hemisphere winter . Prices could then stay high if winter is long and cold, seasonal wind patterns are weaker than normal — as they have been for much of the year — LNG continues heading to higher-priced Asian markets and there are further delays starting up Russia's Nord Stream 2 pipeline. EU reliance on LNG imports and Russian piped gas has backfired, as higher Asian LNG demand and Russia's seeming unwillingness or inability to boost flows are what have helped drive wholesale power prices to their current dizzying levels.High Carbon Prices HurtEU carbon prices hit a record €62 ($73) per credit last week, up from €28 a year ago. This isn't stopping generators from using coal, as it is cheaper than gas. But the elevated prices are hurting EU states like Poland that rely heavily on coal. Utility PGE said last week it expected a shortfall of 600 million carbon emissions allowances by 2030 due to a "structural deficit" caused by dependence on coal power. At current prices, it would have to pay €40 billion to buy the allowances on the open market, cutting the amount available for energy transition measures.