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Coal price drop sees German coal-fired power margins swing above gas

German coal-fired power generation margins have recovered from recordlows in January as European coal prices fell some $6/mt this week, withforward gas prices more stable after falling in January.

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* European coal down over $6/mt on week as gas stays stable

* Year-ahead power at 3-month low on bearish politics

* Strong euro offsets higher EUA carbon impact

S&P Global Platts data shows the German year-ahead clean dark spread(CDS) for a 45% efficient old coal unit rebound above Eur4/MWh by closeThursday with even the CDS (35% efficiency) for the oldest coal plants againabove modern gas plants.

In January, the clean-spark spread (CSS 50% efficiency) for a modern gasunit rose above CDS (35%) for only the second time since 2011 amid coal nearrecord-highs, bearish gas due to the very mild winter so far and a surprise10% rally for EUA carbon allowances, which reached a 2012-high at Eur9.56/mt.

However by Friday, EUA carbon fell back below Eur9/mt, with the strongereuro, which reached a 3-year-high against the dollar above $1.24, makingdollar-nominated coal again cheaper for eurozone buyers.

Coal into Europe for the year-ahead fell from above $87/mt last Friday,its highest close so far this year, to below $82/mt Thursday amid bearishsignals from the Asian market ahead of the Chinese New Year, according tosources.

In addition, outright power prices turned bearish amid easing politicalpressure to close coal from the next coalition government with the Germanyear-ahead power price falling to a three-month-low below Eur34/MWh Friday.

FIRM GAS SEES SPARK SINK BELOW DARK SPREAD

Meanwhile, gas-fired power generation margins fell back this week on theback of firm gas prices amid colder weather forecasts for February as well aspossible further production cuts at the giant Groningen gas field in theNetherlands.

The year-ahead clean spark spread for a 50% efficient gas plant fell backto minus Eur3.13/MWh Thursday, down from a 2018-high at minus Eur1.61/MWhMonday, the data shows.

For the month-ahead, the swing back in favor of coal was even starkerwith the CSS falling below minus Eur4/MWh and CDS (45%) remaining firmly inpositive territory for March, indicating higher generation margins for coalplants again, the data shows.

Output from German hard-coal fired power plants fell 16% in 2017, mainlydue to coal plant closures on the back of worsening generation margins, whilegas-fired output increased marginally compared to 2016 despite a worseningperformance during Q4 amid rising gas prices.

In January, both coal and gas were squeeze by record wind with coaloutput falling 50% on year and gas-output (from reporting CCGT plants) down57% on year compared to January 2017, TSO data shows.

--Andreas Franke, andreas.franke@spglobal.com

--Edited by James Leech, james.leech@spglobal.com