Profit margins for using coal-fired power plants to produce electricity for delivery in Germany next year have hit a 12-week high after last week's gas market rally outweighed continued gains for coal, with reduced nuclear availability forecasts also lifting power which is set to reach its highest monthly average this year, an analysis by S&P Global Platts showed.
The German year-ahead clean dark spread (CDS) for a 35% efficienct coal plant has risen to Eur1.40/MWh from a five-year-low at Eur0.20/MWh at the end of August, Platts data showed.
Profitability levels for the latest generation of German coal plants at 45% efficiency were up 27% to Eur6.28/MWh.
A key reason for the improved profitability of coal plants this month, with even the oldest, least efficient coal plants still Eur6.50/MWh more profitable than modern gas-fired power plants, was a sharp rise in power prices amid a number of bullish fundamentals, while last week's sharp rebound for gas outpaced the continued strength of front-year coal, now trading above $60/mt.
German year-ahead power rose 12% over the past two weeks from just below Eur25/MWh on September 12 to above Eur28/MWh Monday for the first time since mid-July, to be marginally below the 2016 high at Eur28.55/MWh reached in the days before the UK Brexit vote when coal prices reached 15-month-highs.
Dutch TTF front-year gas, the benchmark for Continental gas, rose almost 10% over the two weeks to Friday, to close at Eur15.625/MWh, its highest since August 18.
EUA carbon allowance, meanwhile, also rebounded strongly from a three-year-low below Eur4/mt at the start of September to trade above Eur4.50/mt -- with higher carbon prices favoring less carbon-intense gas-fired power generation.
Outright power prices across Europe turned bullish last week after EDF cuts its nuclear production target for the remainder of the year as well as 2017 with a number of planned refueling outages in the first quarter reducing winter supply further.
In Germany, almost the entire nuclear fleet is planned to come offline for a combined 100 days at the start of 2017 for refueling stops to avoid a nuclear fuel tax that runs out 2016.
This unprecedented winter maintenance schedule will cut nuclear supply by over 3 TWh between January and March, analysis by Platts showed.
Fossil fuel-fired output replacing much of the nuclear shortfalls in France and Germany should increase demand for carbon allowances, with the actual shortfalls largely driven by demand in the temperature-sensitive French power market and actual wind levels in the German market, according to sources.
A combination of reduced nuclear, below average wind and rising fuel prices are set to lift the German spot monthly average above Eur30/MWh this September for the first time since last November.
