London — German gas plant profitability is stretching deeper into winter, maintaining its economic ascendancy over inefficient coal plants, S&P Global Platts generation spread data showed Wednesday.
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Register NowWhile around 10 GW of German and Dutch coal capacity with 45% efficiency rating have an economic advantage over modern combined cycle gas units in Q4, gas-fired generation margins remain near their highest since 2010 with modern gasplants replacing older coal units deep into 2019.
Into Q1 2020 the data show rising margins helping to lift potential earnings for both gas and coal plants.
The merit order for Q1 is led by new coal plants (45% efficiency) with clean dark spreads at Eur12/MWh followed bygas plants (50% efficiency) with clean spark spreads just below Eur5/MWh.
Even the oldest coal plants with 35% efficiency are back in positive territory for Q1 2020.
Some 3 GW of central plant are due to shut this winter including the 1.4 GW Philippsburg 2 reactor (end-2019), 800MW of lignite units moving into the reserve from October and the 600 MW Hemweg 8 coal plant in the Netherlands also facing a closure call by the government.
SEASONS CHANGE
Coal to gas switching remains a phenomenon despite the EU CO2 price falling 10% from its peak amid growing evidence that Europe's major economies are in recession.
Gas prices remain bearish with European storage levels seen nearing full capacity in September.
This has kept benchmark Dutch TTF gas at around Eur11/MWh for month-ahead, while the year ahead contract is at a multi-month low of Eur17/MWh.
Last year September TTF gas traded around Eur24/MWh in a tight market, while year ahead at Eur22/MWh was at a discount on expectations of more LNG deliveries in 2019.
Current, clean spark spreads reflect this dynamic, with gas plant margins twice as profitable for the front month (Eur8/MWh) than the front year (Eur4/MWh).
For coal, this seasonal change is the reverse with clean darks for September of Eur3/MWh a third of those for the year ahead, at Eur10/MWh.
Outturn Q4 spreads will be reliant on the weather (temperature for gas demand, wind for power supply) as well as external events ranging from Brexit to Ukraine gas transit details from 2020 amid delays to the start of the Nord Stream2 gas pipeline.
"Next winter things will be entirely different, as demonstrated by the current high forward prices," RWE CFO Markus Krebber said last week during an analyst call with the utility also facing political headwinds for its coal plants in Germany and the Netherlands.
German and Dutch climate cabinets are having a joint meeting Thursday in The Hague to coordinate national climate policies. Both countries are planning legally-binding 2030 targets after 2020 carbon emissions are set to miss the target, despite near-record declines expected this year.
-- Andreas Franke, andreas.franke@spglobal.com
-- Edited by James Burgess, james.burgess@spglobal.com