RWE's Niederaussem, a lignite-fired power plant in Germany. The utility appears hardest hit by declining economics for coal in Europe.
European utilities are facing billions in losses from running coal-fired power plants this year as a surge in carbon prices and a global gas glut make running the assets uneconomic compared with renewables and gas plants, according to a report.
In total, 79% of coal plants in the EU are running unprofitably and could cost their owners a combined €6.57 billion in 2019, according to the report by the Carbon Tracker Initiative, an environmental group. Commodity prices have made it more profitable to run gas plants instead of coal for much of this year.
"EU coal generators are hemorrhaging cash because they cannot compete with ever-cheaper renewables and gas and this will only get worse," said Matt Gray, head of power and utilities at Carbon Tracker and a co-author of the report.
The think tank analyzed economics for each coal plant in Europe and estimated that 84% of lignite, or brown coal, and 76% of hard coal generators are running at a loss, driven into the red by competition from cheap gas and rising carbon prices under the EU Emissions Trading System.
Utilities are forced to buy carbon permits under the program, which saw supply artificially tightened this year to spur faster emissions cuts.
Carbon Tracker said the hardest-hit operators are Germany's RWE AG, which stands to lose €975 million, or 6% of its market capitalization. Energetický a prumyslový holding a.s., which mainly runs coal plants in Germany and the Czech Republic, could lose €613 million, while Greece's Public Power Corp. SA could lose €596 million, according to the report.
The losses could become sustained as carbon costs are forecast to keep rising and utilities will need to install more expensive technology to meet stricter EU air quality standards from 2021, the report said.
Many of the generators running loss-making coal plants also own gas-fired capacity, meaning they could increase profits from those assets to make up for some of the shortfalls in coal-fired fleets.
"Even with less-sufficient gas-fired power plants, we're able to compete with more coal-fired power plants on the market in terms of short-term operating costs, and for the first time, even with lignite power plants," Andreas Schierenbeck, CEO of German power producer Uniper SE, said in August.
Carbon Tracker calculated that hard coal generation in the EU is down 39% this year compared to 2018 and lignite generation has dropped 20%. Lignite is cheaper than hard coal, and some utilities, including RWE, operate their own lignite mines, which further lowers costs for running the associated power plants.
In total, Germany's lignite and hard coal plants could lose up to €9 billion this year, while Spain and the Czech Republic face losses of €992 million and €899 million, respectively, according to Carbon Tracker.
Reacting partly to the changing economics, RWE scrapped a planned lignite unit in Germany in April. And Endesa SA, the Spanish subsidiary of Italy's Enel SpA, announced in September that it plans to shut down all of its coal plants in Portugal and Spain, where the fuel's share in the power mix is set to reach the lowest level ever this year.
Some coal plants are expected to stay profitable. Poland's fleets receive "relatively high subsidies," Carbon Tracker said, while efficient units in Germany and the Netherlands, as well as plants in Italy, the Czech Republic and Slovenia that benefit from high wholesale power prices, will likely continue making money.
Nonetheless, the think tank said the findings should encourage policymakers to speed up plans to phase out coal generation, already in place in major economies such as Spain, the U.K. and Germany. Others, such as Poland, have no plans to remove the fuel from their power mix.
Governments will face "intractable problems" if they support coal in the long term since this would mean either passing costs to the utilities and thus "destroy shareholder value," passing costs to consumers through bill increases, or funding them from debt or taxes, Carbon Tracker warned.