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German coal-fired margins at highest level since 2015 as coal, carbon ease

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German coal-fired margins at highest level since 2015 as coal, carbon ease

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Even oldest coal units (CDS 35%) back in the money for 2019

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London — Germany's coal plants are in the midst of a period of improved economic viability, with even the country's oldest, least efficient units back in the money for 2019 as coal and carbon prices ease, S&P Global Platts data showed.

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The year-ahead clean dark spread for a 45%-efficient coal plant rose to Eur8.66/MWh by market close Wednesday, the highest since 2015 and up from Eur6/MWh early November. The contract had plumbed a record low of Eur1.32/MWh in June.

Even a 35%-efficient coal plant is now back in positive territory for 2019. For December, the CDS 35% spread was pegged above Eur8/MWh, while clean spark spreads for 50%-efficient gas plants remain in loss-making territory with the gap between modern gas units and old coal units widening to almost Eur10/MWh for December, the data showed.

Margins for coal and gas plants have been unusually volatile since August due to strong movements in carbon, gas and coal prices, as well as outright power prices.

European-delivered year-ahead coal prices, which hit $100/mt in October, fell to $86.25/mt by close Wednesday, Platts data showed.

By contrast, year-ahead TTF gas prices remain around Eur24/MWh, sustained by colder weather forecasts for late November.

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Meanwhile, CO2 prices fell below Eur19/mt Thursday, amid continued Brexit woes and German growth jitters. EUAs had peaked above Eur25/mt in September.

Outright German forward power prices have begun to follow gas prices more closely, with Cal 19 baseload power prices sustained above Eur50/MWh since August (and almost double year on year).

There are a number of real-world caveats to the implied market signals sent by German spark and dark spreads, including increased transport costs for coal plants along the Rhine, blending of non-benchmark coal cargoes, and additional revenues from heat markets for most gas-fired capacity.

COAL PHASE-OUT TO REDUCE CARBON EMISSIONS

Despite the rebound for coal-fired generation margins, German energy-related CO2 emissions are on track for their biggest annual decline since 2009, with primary energy use in Europe's biggest economy set to fall back to early 1990s levels, research group AG Energiebilanzen said early November.

Power-sector specific data analyzed by Platts suggested some 3% less CO2 emissions from the power sector, mainly driven by a sharp decline for coal in the first half of 2018 and assuming average weather conditions for the remainder of 2018.

Germany's coal exit debate is also entering its final phase, with the coal commission's recommendations for coal plant closures to meet the 2020 climate targets due by end-November amid expectations of continued closures of the oldest units.

In addition, Germany's biggest power generator, RWE, expects a 9-13 TWh/year reduction from its lignite-fired power plants due to mining restrictions at its Hambach lignite mine until end-2020.

That corresponds to roughly 2% of annual German power demand and up to 5% of annual power-sector CO2 emissions.

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

--Edited by Annie Siebert, newsdesk@spglobal.com