Profit margins for using coal-fired power plants to produce electricity for delivery in Germany next year have fallen to the lowest since December 2010 as coal prices rallied over 60% from record-lows in February, while power rose only 35% over the period, an analysis by S&P Global Platts shows.
The German year-ahead clean dark spread (CDS) for a 35% efficient coal plant dropped below Eur1/MWh this week for the first time in over five years with the CDS (35%) for 2019 even turning negative, Platts data shows.
Profitability levels for the latest generation of German coal plants at 45% efficiency fell to Eur5.68/MWh Wednesday.
Averages levels for the German coal-fired power plant fleet are difficult to establish, but are generally seen around 40%, according to sources.
Key reason for the reduced profitability of German coal plants, with even the oldest, least efficient coal plants still some Eur8/MWh more profitable than the most modern gas-fired power plants, is the sharp rise in the global seaborne coal market with year-ahead coal into Europe rising over 60% from record-lows in February to close Wednesday just below $60/mt, its highest close in over a year, Platts data shows.
The equivalent German year-ahead power contract rebounded just 35% from record-lows in February, closing Wednesday at Eur27.40/MWh, still marginally below 2016-highs hit shortly before the UK voted on June 23 to quit the EU.
EUA carbon allowance, meanwhile, fell to a three-year-low in the wake of the so-called Brexit vote to trade below Eur5/mt compared to levels above Eur8/mt a year ago.
CHALLENGING OUTLOOK
By contrast, gas-fired power margins remain firmly negative despite the much slower rebound in gas prices with oversupply in the global gas market putting a lid on gas price.
Platts data showed the German year-ahead clean spark spread (CSS) at minus Eur7.27/MWh by close on Wednesday, but up from minus Eur13/MWh a year ago.
Clean spark spreads improved massively in the second half of 2015 as higher EUA carbon allowances and falling gas prices improved the outlook for gas-fired plants.
This trend stopped at the start of 2016 with a sharp plunge for EUA carbon allowance. Since June, however, the coal market has stepped outside the general sentiment across the energy complex which initially was led higher by crude oil rebounding briefly above $50/barrel.
Improved sentiment across Asia as well as possible weather risks such as La Nina for coal suppliers in Australia and Indonesia and different hedging strategies within the global seaborne coal market have seen a further 20% gain for European coal despite oil trading in a narrow range since June, limiting the upside potential for gas.
Dutch TTF year-ahead gas, the European gas benchmark, has risen just over 20% from February to a Eur16.45/MWh close on Wednesday.
Gas-fired power plants' share in the German power mix fell below 10% in 2015, while coal (including domestic lignite) still contributed some 42% with renewables' share in the power mix rising above 30%, BDEW data shows.
The German government plans to phase out nuclear power and has also presented some proposals how to reduce coal and lignite in its power mix in the long term.
Government support for gas-fired combined heat and power plants (CHP) will add further supply to an already oversupplied system with gas-fired CHP plants driven more by heating demand.
With gas-fired power plants marginalized, coal and renewables (wind, solar) keep dominating German power with recent capacity additions of over 20 GW for coal and wind further enhancing this trend.
