Coal- and gas-fired power output across Western Europe will be squeezed further in May as a surge in hydro, strong solar and continued wind output gains more than offset demand gains and reduced nuclear output, TSO data aggregated by S&P Global Platts Analytics show.
Within that shrinking "thermal gap" coal is expected to perform slightly better than gas in May and June as outright gas price gains have pushed front-month generation margins to three-year-lows, with most coal plants still ahead of gas in the merit order despite coal-fired generation margins at record lows, Platts fuel switching data shows.
The "thermal gap" is the top part of the merit order where coal and gas plants compete as the price-setting forms of power generation. The size of the thermal gap is set by variations in demand, renewables output and conventional plant availability.
Gas plant output in April was on average 5 GW lower than in April 2017, while coal plant output is down over 3 GW year on year, with a similar trend already observed in the first quarter, the aggregated data for the four countries shows. However, compared with the fourth quarter 2017, there is a swing away from gas in favour of coal within the overall declining thermal gap.
Power demand across Continental Europe's four biggest power markets combined was up in April, with gains in Spain and Italy offset by a slight drop in France extending the trend of modest demand gains across the region so far this year.
Hydro surge, solar records expected for May
Most striking in April was the surge in hydro output, with Spain and France registering the biggest gains, completely reversing last year's hydro deficit.
Across the four countries, hydro output was up 10 GW year on year, with other renewables adding another 3 GW year on year, the aggregated data shows.
Nuclear output was down by almost 3 GW due to unplanned extended outages in Spain and France.
Looking ahead, hydro output is expected to stay well above last year's levels, with snowmelt now underway across the Alpine region and comparisons with the hydro-rich 2013 summer season following record snow this winter, according to Platts Analytics.
In addition, solar output could set fresh records in May amid modest capacity growth, while wind output despite its seasonal decline is set to trend above last year's output levels amid strong turbine growth especially in Germany and France.
Nuclear availability in France is also well above last summer's levels, with some risk remaining due to a regulator requested review across all French reactors and only 17 out of 58 reactors cleared so far, while in Spain the 1 GW Vandellos reactor outage has been extended to July, supporting demand for gas.
Overall, record renewable output so far this year will continue to more than offset slight demand gains due to strong economic activity in the eurozone, the trend shows.
This bearish trend for power fundamentals is keeping a lid on outright power prices for the remainder of this quarter despite bullish fuel and carbon prices ahead of rising prices for the second half of the year and into 2019.
This adds pressure on conventional power generators, with summer generation margins for both gas and coal plants sharply lower than in summer 2017.
