Profit margins for coal-fired power plants to produce electricity for delivery in Germany next year have rebounded as coal prices plunged over 15% from last week when they were hit the highest point since 2014.
At the same time, relatively stable gas saw gas-fired generation margins fall again into negative territory, S&P Global Platts data shows.
The German year-ahead clean dark spread (CDS) for a 35% efficient coal plant rebounded to Eur0.87/MWh after plunging below zero for the first time in at least five years as coal prices rose sharply on tight supply fundamentals in the Asian market.
Meanwhile, the German year-ahead clean spark spread (CSS) for a 50% efficient gas-fired plant fell to minus Eur3.26/MWh, after last week reaching its highest level since early 2012 at minus Eur1.20/MWh, Platts data shows.
This diverging development widened the spread between the oldest coal plants and modern gas plants to around Eur4/MWh after shrinking early November to just Eur1/MWh, its narrowest since 2011.
The gap between coal and gas generation margins was around Eur20/MWh three years ago with most gas plants uneconomic to run.
Key reason for the slightly improved profitability of German coal plants is the sharp drop in global coal over the past week, while gas remained relatively stable.
Front-year coal into Europe plunged over 15% from last Monday's two-year-high above $78/mt to close Wednesday below $67/mt and trading Thursday as low as $63/mt.
The global coal market corrected sharply after prices more than doubled from record lows in the spring with European Cal 17 coal gaining some 40% alone since September.
By contrast, the recovery for Dutch TTF front-year gas, the benchmark for Continental gas, lagged behind coal, but remained more stable than coal over the past week, trading largely in a wide range around Eur17/MWh since the summer.
EUA carbon allowance, meanwhile, continue to trade in a very volatile range, but remain relatively cheap, falling over 10% from last week's six-month-high to trade around Eur5.50/mt.
Low carbon prices favor more carbon-intensive coal, which is also more impacted by currency fluctuations and the euro falling to a 2016-low against the dollar below $1.07 in the aftermath of Donald Trump's victory in the US presidential elections.
A weaker euro makes dollar denominated coal generally more expensive for eurozone buyers, but a stronger dollar itself may have a more direct impact on outright coal prices through other local currencies in coal producing countries.
POWER TUMBLE
German year-ahead power, which rose some 40% since mid-September, has also dropped sharply on lower coal prices, shedding over 10% to drop from a two-year-high above Eur35/MWh in early November to a four-week-low below Eur31/MWh Thursday.
Outright power prices across Europe turned bullish this Autumn in what some analysts called a "perfect storm" of rising generation costs and supply concerns amid shrinking conventional plant capacity. On top of this, French utility EDF is struggling to return some 10 GW of nuclear capacity with ongoing inspections at some of its French reactors, which has turned France into a net importer of power from October with Germany on track to replace France as Europe's biggest exporter of electricity this year.
The increased cross-border demand is a boost for Germany's struggling conventional power generators with both coal and gas plants recording improved load factors.
Over the past three years, expensive gas and rising supply from renewables has seen many modern gas-fired CCGT power plants mothballed in Germany with coal extending its dominance in the fuel mix and low EUA carbon prices helping to extend the life of older coal-fired power plants.
But in recent months, and following a spate of coal-plant closures in the UK, France and the Netherlands, there are now some signs of German plant operators closing coal plants and returning modern gas-plants from mothballing as well as commissioning some brand-new CCGT plants.
Lower gas prices as well as government support for gas-fired CHP (combined heat and power plants) will further boost gas-fired power generation this winter with an expected shortfall in nuclear output.
Two of Germany's biggest coal plant operators -- RWE and Steag -- plan to close hard coal capacity with the 1.4 GW Voerde plant (already at 38% efficiency) set for retirement next spring and Steag planning to retire a further five units with a combined 2.5 GW capacity next year.
While coal keeps dominating the German power mix with domestic lignite and hard-coal plants still generating over 40% of the country's electricity, the share of gas in the power mix is set to rebound this year above 10% with gas plants registering the only gains across conventional power plants.
Renewables will rise further above 30% on track to reach its ambitious 45% targets by 2025, while nuclear's share will drop from currently 15% to zero by 2023 on the nuclear phase-out plan, which still has priority over a potential coal exit in the German government's energy policy.
The German government avoided any specific anti-coal measures in its 'Climate Action Plan 2050' which passed cabinet this week and which is seen as a road map for Germany's planned decarbonization.
