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London — Profit margins for modern coal-fired power plants to produce electricity for delivery in Germany next year have risen to a new 2017 high as the impact of bullish coal, trading at three-year highs, was offset by EUA carbon allowances falling back from 20-month highs, S&P Global Platts data shows.

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The German year-ahead clean dark spread (CDS) for a 45% efficienct coal plant rose to Eur6.85/MWh Monday from Eur5.63/MWh at the start of August and from below Eur5/MWh at the start of 2017, the data shows.

At the same time, the German year-ahead clean spark spread (CSS) for a 50% efficient gas-fired plant fell slightly to minus Eur1.89/MWh, with the spread between modern coal and modern gas plants widening again above Eur8/MWh.

The gap between the oldest coal and modern gas units has almost vanished from near Eur20/MWh three years ago on fundamental changes to the global supply-demand balance for coal and gas.

While global coal prices remain bullish on strong demand in Asia, gas prices have turned bearish on the global supply glut -- especially from new LNG sources.

Front-year coal into Europe remained Tuesday above $81/mt, its highest in over three years, while front-year gas remains almost a third below levels three years ago despite the TTF front-year gas contract rising Monday above Eur17/MWh, its highest since February, Platts data shows.

But a 5% drop for EUA carbon allowances since reaching a 20-month high on Friday has offset some of the impact of bullish fuels costs on outright power, with coal plants benefiting more from lower carbon prices due to their higher carbon intensity.

German year-ahead baseload power has rallied over 20% since May to reach a record-high for the Cal-18 contract at Eur35.15/MWh Monday, mainly driven by rising generation costs but also by fears about another winter of reduced nuclear availability in France with Germany's Gundremmingen B reactor also set for closure by end-2017.

Coal (including domestic lignite) still dominates the German power mix, but gas' share is set to rise with gas plants registering the only gains across conventional power plants so far this year, despite a dip in August.

There was a sharp rise in gas-fired power production in August after the near-term clean spark spreads for modern gas plants overtook the clean dark spread for the oldest coal plants for the first time in five years, increasing the pressure on old coal plants to close with another 2 GW of coal units at Voerde closing this spring.

But 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 hit by this trend and are 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, with at least 5 GW of lignite and nuclear capacity leaving the market by end-2019 thus reducing conventional supply margins, and with Germany's boom in onshore wind installations also expected to come to a halt in 2019.

--Andreas Franke,
--Edited by Jeremy Lovell,