By Lars Paulsson and Nicholas Larkin

May 30 (Bloomberg) -- Electricity rates are set to rise in Europe, boosting utility sales and punishing consumers as prices fail to keep pace with the coal and natural gas used to fire power plants.

German prices for 2009 delivery will probably climb 10 percent by the end of this year to 82 euros ($127) per megawatt hour, according to UBS AG analyst Per Lekander. They advanced 12 percent last year.

As power increased, coal more than doubled in a year to $167 a ton from South Africa and natural gas in Britain almost tripled. Record energy costs led industrial customers including Wal-Mart Stores Inc., the world's biggest retailer, and Dutch airport operator Schiphol Group NV to plan to trade electricity directly on commodity exchanges to save money.

``European power is still cheap with current fuel prices,'' Daniel Dahlin, chief investment officer at hedge fund manager Electris Asset Management Ltd., said in an interview from Stockholm. ``The trend is pointing up.''

Oil futures more than doubled in a year to exceed $135 a barrel in New York, spurred by supply constraints and a weaker dollar and closed yesterday at $126.62 a barrel on the New York Mercantile Exchange. Coal jumped on Asian demand and a lack of ships.

German 2009 electricity advanced 20 percent this year to more than 75 euros a megawatt hour, according to broker GFI Group Inc. In addition to higher coal costs, emissions permits increased 18 percent in Europe, reducing profit from burning fossil fuels.

Margin Squeeze

The profit from running coal-fired plants including emissions costs, the so-called clean dark spread, plunged 66 percent this year to about 4 euros a megawatt hour, Bloomberg data show.

Sales from E.ON AG, Germany's biggest utility, are estimated by analysts to rise to almost 81 billion euros in 2009 from 69 billion last year, while revenue at Paris-based Electricite de France SA increases to almost 65 billion euros from about 60 billion in 2007, according to data compiled by Bloomberg.

A four-year rally drew banks and hedge funds to power markets where trading began in the 1990s. Volume in the seven biggest markets rose for a third year to a record in 2007, according to Prospex Research Ltd., a U.K.-based consultant that tracks trading.

Wal-Mart's Power4All Ltd. last month joined APX BV's U.K. exchange to buy power for its 356 Asda supermarkets. Trading may save 2 million pounds ($4 million) a year, Asda retail director Andy Clarke said.

Schiphol, Norsk Hydro

Amsterdam airport operator Schiphol will begin to trade on the European Energy Derivatives Exchange NV next year as supply agreements for 2009 and 2010 expire, spokeswoman Kathelijne Vermuelen said May 28 in an e-mail.

Rising bills are cutting earnings at Norsk Hydro ASA, the world's fourth biggest aluminum producer. Paper and chemicals makers are also being hurt, competing with companies that have access to cheaper electricity, said Daniel Cloquet, director of industrial affairs at the Confederation of European Business in Brussels. Power accounts for about 30 percent of Norsk Hydro's costs.

Higher electricity isn't exclusive to Europe. Power prices in the U.S., the world's biggest energy market, will likely rise as declining margins mean generators aren't adding enough supply to meet demand, said Michael Zenker, a Barclays Capital Inc. commodity analyst.

``They are not seeing any signs of urgency to add capacity regardless of whether it's needed in the market,'' he said from New York.

Power producers in the Midwest at gas-fired plants are losing money, Bloomberg data show. Prices need to be above $30 a megawatt hour to encourage new building, assuming the unit runs for 16 hours a day, Zenker said.

Record Prices

Floods and congestion at ports curtailed coal shipments from Australia, the world's biggest exporter. Delivery to Amsterdam, Rotterdam, and Antwerp for the next four years will stay above $154 a ton, futures contracts from ICAP Plc show.

``The rise in coal prices is probably here to stay,'' Dahlin of Electris said.

Coal fuels 40 percent of the world's electricity, according to the World Coal Institute.

A repeat of heatwaves in 2006, which forced producers to curb supplies in the summer, could push German next-year power to 80 euros by July, Chad Tschudi, portfolio manager at Prague-based utility CEZ AS, said in a May 22 interview.

Temperatures during June through August are likely to be above average for much of Europe, according to the U.K.'s Met Office.

For electricity, ``the buying interest, the appetite, is just ferocious,'' Tschudi said.

To contact the reporters on this story: Lars Paulsson in London at lpaulsson@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net