European electricity prices are reaching new records as a heat wave limits energy supplies and forest fires rage across France, writes Bloomberg.

The rise in prices reflects a tight market for natural gas, which is used to fuel power plants, as Russia cuts supplies while Europe works to build up supplies for the winter. Declining nuclear reactor capacity, as well as weak wind and hydropower, have exacerbated the crisis, increasing the likelihood of intervention to reduce demand.

For next year, the German energy benchmark rose by 6.6 percent to a record 455 euros per MWh on the European Energy Exchange AG. The French contract increased by 7.8 percent and amounted to 622 euros per MWh. That's roughly $1,100 per barrel of oil energy equivalent.

Heat waves this summer have increased demand, exacerbating supply disruptions as key waterways that are used to generate hydroelectric power, cool nuclear power plants, and deliver energy carriers are drying up.

France is in a particularly dire situation, with more than half of the country's nuclear sector shut down for maintenance. Normally, the country exports electricity, but this year it became a net importer, forcing neighboring countries to burn more natural gas. Forest fires are raging across the country, prompting President Emmanuel Macron to enlist support from across Europe to fight the blazes.

Due to power outages, the UK has warned of a narrow gap between supply and demand. While National Grid ESO, the country's grid operator, has said production will be sufficient, this is another sign of the difficulties Europe's power system has faced this year.