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German year-ahead gas-fired power generation margins hit 2017 high

Highlights


Bullish coal near 3-year high lifts power despite bearish gas

Cal-18 clean spark spread up Eur7 since Jan to minus Eur1.60/MWh

EUA carbon allowance gains benefit gas over coal

London — Generation margins for gas-fired power plants to produce electricity for delivery in Germany next year have risen to a fresh 2017 high as bullish coal has pushed outright power for Cal-18 delivery to its highest in over two years, while a rebound for EUA carbon allowances has benefited gas more than carbon-intensive coal-fired generation, S&P Global Platts data shows.

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The year-ahead clean spark spread (CSS) for a 50% efficient gas plant rose to minus Eur1.60/MWh by the Thursday close, after starting the year below minus Eur8/MWh and compared with levels around minus Eur14/MWh two years ago as global gas prices have dropped amid a global oversupply from LNG, while European coal prices are supported by tight supply fundamentals in Asia, the data shows.

This trend has more than halved the gap between old coal and modern gas-fired power plant margins from still over Eur6/MWh in May to now under Eur2/MWh and compared with almost Eur20/MWh just two years ago, Platts data shows.

Front-year coal into Europe has rallied over 20% since May to almost reach $80/mt Thursday, its highest level since September 2014, while TTF front-year gas has remained flat since May and is now over a third below levels seen in 2014, Platts generating fuel data shows.



In addition, EUA carbon allowances have gained over 30% since May reaching a five-month-high at Eur5.96/mt Thursday.

Rising coal and carbon prices were the main reasons for outright power to rise to fresh year highs, with the benchmark Cal-18 baseload trading above Eur33/MWh for the first time since Platts started assessing the contract at the start of 2015.


SEPTEMBER SPARKS TURN NEGATIVE


On the near curve, however, where modern gas-fired power plants have been ahead of old coal plants in the merit order for a second summer in a row, the front-month clean spark spread for September delivery has turned negative this week amid improved near-term nuclear availability and German nuclear output reaching its highest level so far this year with all eight remaining reactors online for the first time in 2017.

Monthly output from coal-fired power plants in July rebounded from a record-low in June, but the closure of a 2 GW coal plant as well as continued renewable addition and new gas-fired plants all increase the pressure on more coal-fired power plant to close amid a worsening outlook for the oldest and least efficient units.

Germany's modern fleet of 45% efficient coal plants that entered the market over the past years with Uniper's 1 GW Datteln-4 unit set to be the last ever coal-fired power plant to come online next year in Germany, will not be impacted by this trend, expected to provide baseload power for decades to come.

Germany's biggest power generators RWE and Uniper have renewed their focus on security of supply amid at least 5 GW of lignite and nuclear capacity leaving the market by end-2019 reducing conventional supply margins with Germany's boom in onshore wind installations also expected to come to a halt in 2019.

--Andreas Franke, andreas.franke@spglobal.com
--Edited by James Leech, james.leech@spglobal.com