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German coal margins for oldest power plants turn negative again

London — Profit margins for Germany's oldest coal-fired power plants to produce electricity next year have again turned negative with bullish global coal prices no longer offset by gains for the euro, which has eased slightly from a two-year high last week, S&P Global Platts data shows.

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The German year-ahead clean dark spread (CDS) for a 35% efficient coal plant fell to minus Eur0.17/MWh by close Friday, down from levels above Eur1/MWh in early June when spreads recovered from their first ever negative period during the first quarter, the data shows.

The falling 35% efficiency spreads are indicating a rising non-profitability for Germany's oldest coal plants with the 2 GW coal plant at Voerde that closed in April reporting efficiency levels around 37%.

The 45% efficiency CDS spread for Germany's fleet of modern coal plants has also dropped to a four-month-low, but remains considerably higher, closing Friday at Eur5.63/MWh, Platts data shows.

The lower dark spreads come amid bullish gains for coal prices with front-year coal into Europe closing Friday at $75/mt, just below a 2017-high set last Monday.

Front-year coal into Europe is up by around 17% since April with gains mainly driven by strong Asian demand and tight supply.

That compares to a 10% gain for the euro against the dollar to reach $1.19 last Wednesday, its highest in over two years and making dollar-nominated coal generally cheaper for eurozone buyers.

However, the euro fell back to $1.17 Friday amid positive economic data from the US reducing the cushioning impact on the dark spreads.

Gains in the coal market were mainly driven by Asian demand.

At the same time, gas-fired margins (for a 50% efficient gas-fired plant) eased only slightly to minus Eur2.79/MWh Friday, Platts data shows, with front-year TTF gas prices little changed around Eur16/MWh as the expected glut of LNG deliveries into Europe offset continued strong demand for gas from the power sector especially across Southern Europe.

Outright power prices for Cal 18 baseload have remained subdued despite bullish coal closing Friday at Eur31.20/MWh after almost hitting Eur32/MWh mid-July, a level not reached for that contract since July 2015, Platts data shows with the strong euro and slightly lower carbon prices offsetting the bullish impact of coal.

EUA carbon allowances, which have rallied mid-July to a four-month-high above Eur5.50/mt, have eased slightly to levels around Eur5.30/mt.


The decreasing profitability outlook will increase the pressure on Germany's oldest coal plants to close, with almost 9 GW having already been shut down since 2012, the latest power plant closure list by the grid regulator BNetzA shows. However, Germany also added some 8 GW of modern and more efficient coal plant over the period with Uniper's 1 GW Datteln 4 unit -- expected to enter service next year -- presumably the final new coal plant in Germany.

According to the grid operator's plant list, there are still some 25 GW of hard-coal plants operating in the market following the 2 GW Voerde closure in April with hard-coal still the second-biggest source in Germany's power mix behind Germany's 20 GW lignite coal fleet and both together still accounting for over 40% of German electricity.

In July, German Chancellor Angela Merkel admitted that Germany needs to exit coal in the long term in order to achieve its climate targets, with energy policy set to focus more on lignite plants after the elections rather due to the additional jobs in the mining sector in German lignite regions, while a stricter carbon policy could lift under-utilized, but less carbon-intensive gas plants above old coal plants in the power market merit order in Germany.

Output from Germany's 24 GW of gas-fired power plants has registered strong gains over the past year amid sharply improved generation economics with gas-fired output up by around 20% so far this year following a 27% gain in 2016.

--Andreas Franke,

--Edited by Maurice Geller,