London — European power prices are forecast to rise by 15% in real terms between 2020-2025 on stronger gas and carbon values, according to S&P Global Platts Analytics.
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The unit's latest five-year forecast sees German price gains outstripping all others, rising from below Eur42/MWh next year to over Eur56/MWh in 2025 as nuclear/coal closures make it increasingly reliant on imports.
"Strong renewable growth in Spain and Portugal means they become the region's discount markets from 2023 and are the only ones to see a net fall in prices in real terms over the period," the quarterly update said.
Average power price gains are underpinned by rising gas prices, with gas plant margins (Clean Spark Spreads) forecast to fall in allmarkets except Germany between 2020 and 2025.
Coal plant margins (Clean Dark Spreads) show some recovery between 2020 and 2023 but nevertheless remain below zero for all markets except Italy on an annual baseload basis.
France, the UK, Spain and Italy all see coal capacity phased out completely by 2025 while combined German coal and lignite capacity drops by 13 GW to 24 GW.
"Overall, western European coal capacity falls by 68% between 2020 and 2025," the unit said.
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Nuclear capacity falls by 19%, with Germany, Belgium and the UK accounting for the bulk of losses.
French nuclear capacity is stable over the period, with the only closure being at Fessenheim (1.8 GW), to be replaced by the troubled EPR at Flamanville 3 (1.6 GW).
Growth in wind and solar will fill the gap left by coal and nuclear but the shift signals higher price volatility.
"We have significantly lifted our view of wind and solar capacity to include the latest planned additions," the report said.
And following clearance of a capacity market design by EU and Italian authorities, the unit has revised the timing of Italian coal closures and included 5 GW of additional gas capacity out to 2025.
"A drop in our gas price forecast relative to coal vs our previous report as well as a higher EUA carbon forecast means we no longersee a late recovery in coal profitability by the end of our forecast horizon," it said.
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