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Commodities 2022: ill-timed year of European plant closures clashes with gas crisis

Highlights

4 GW German nuclear to shut boosting coal despite closures

Wind, solar output to rise 8 GW based on normal weather

Platts Analytics sees 2022 gas-fired power hit 2014-low

European power markets enter 2022 in crisis.

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There is no near-term path out of the current gas-driven super-inflation of prices, while another slew of coal and nuclear closures is poised to intensify Europe's reliance on price-setting gas-fired generation.

The interconnected nature of European power systems makes this the case even for national markets with little gas-firing.

Generation costs for a 50% efficient gas-fired power plant in Northwest Europe hit a record Eur287/MWh ($323/MWh) Dec. 17 for Q1 2022 compared to an average Eur43/MWh a year ago, S&P Global Platts data show.

This has lit a fire under forward contracts. German Cal-2022 baseload power, Europe's benchmark contract, had risen over 500% in 2021 to trade Dec. 21 above Eur300/MWh, exchange data showed.

And this ahead of the closure of Germany's last three nuclear reactors by end-2022, taking 4-GW out of the market.

France meanwhile faces another winter of record-low nuclear availability reflected in the front-month peakload contract, trading Dec.17 above Eur1,000/MWh on the EEX exchange.

Demand key variable

While a fall in gas prices and growth in renewables should ease the crisis next year, plant closures "will increase the power market's exposure to gas prices and we see the potential for the extreme prices seen in 2021 to be repeated in Q1 2022 overshadowed by French reactor delays," said Glenn Rickson, who heads up Platts Analytics' European power team.

"Demand is a key uncertainty for 2022, with COVID risk only one factor at play," he said.

Platts Analytics sees 2022 demand across the ten European markets it covers rise by around 2% or 5 GW on average in a year-on-year comparison.

Nuclear is set to remain the single biggest source of electricity for the ten markets, but forecast to fall 4 GW to a record-low 65 GW hourly generation average.

Wind output meanwhile is set to overtake that of gas in 2022, with hydro in fourth.

Coal and lignite output is forecast to rebound only slightly to around 22 GW on average for 2022, despite record-high generation margins -- plant closures have severely diminished capacity over recent years, with only Germany and Poland maintaining significant fleets.

Gas-fired generation was projected to dip to a 41 GW average, driven lower by poor spark spreads. Run times could see upside, however, reflecting variable demand and wind generation, the latter being below average in 2021.

Dispatchable plant closures

As noted, Europe's biggest power market Germany is set for a big shift in its supply-demand balance in the near terms with three reactor closures at the end of 2021 to be followed by a final three closures at end-2022, removing 8 GW or 12% of German supply in all.

Meanwhile, barring a possible lifetime extension, Belgium's Doel 3 reactor is set to close in Oct. 2022, to be followed early 2023 by Tihange 2. In the UK, finally, there will be no reprieve for Hunterston B and Hinkley Point B reactors, both set for permanent closure during 2022.

On the coal front, Germany has already shut 6 GW of hard coal in 2021 following closure compensation auctions with at least another 3 GW to follow in 2022 including the first wave of lignite closures capping combined capacity at 30 GW.

Further out, the new government in Berlin plans to review the coal exit deadline of 2038, with the intention of bringing this forward to 2030 if possible.

Other notable 2022 events include closure of Riverstone's 730 MW Rotterdam coal plant expected to shut in Q2 and closures of at least two more French coal units ahead of Presidential elections in April.

EUROPEAN PLANT CLOSURES 2021/22

Plant
MW
Fuel
Country
Date
Gundremmingen C
1300
Nuclear
DE
Dec. 2021
Brokdorf
1400
Nuclear
DE
Dec. 2021
Grohnde
1400
Nuclear
DE
Dec. 2021
Doel 3
1000
Nuclear
BE
Oct. 2022
Hunterston B
1000
Nuclear
UK
2021/22
Hinkley Point B
1250
Nuclear
UK
July 2022
Hambach units
900
Lignite
DE
Dec. 2021
Neurath A
300
Lignite
DE
April 2022
Neurath D+E
1200
Lignite
DE
Dec. 2022
RDK7
500
Coal
DE
Summer 2022
Wilhemshaven, Mehrum
1500
Coal
DE
Dec. 2021
Rotterdam
730
Coal
NL
tba
West Burton A
600
Coal
UK
Sept. 2022
La Spezia, Fusina
870
Coal
ITA
2021
Litoral
1200
Coal
ESP
2022
Emile Huchet 6, Provence 5
1200
Coal
FRA
2022
Cordemais
1200
Coal
FRA
tba

Source: S&P Global Platts

First new reactors

Offsetting these debits, Europe's first EPR reactor in Finland is finally about to come online with first electricity to be produced in January 2022 and commercial operations to start in June.

In France, fuel loading at the Flamanville 3 EPR is scheduled for end-2022, allowing for a 2023 start for the first new French reactor in a generation.

On the gas front, new CCGT capacity is to start at Keadby 2 (GB), Landivisau (France), Agios Nikolaos (Greece) as well around 2 GW in Germany replacing coal at VW Wolfsburg and Herne 6.

European wind power is set for a boost after sluggish growth, with UK offshore projects leading new additions while France is to bring online its first offshore wind farm at the 500 MW Saint Nazaire site.

In all, Platts Analytics forecasts average wind and solar production in the ten European markets it covers to average at a record 64 GW in 2022 assuming average weather conditions, up from a 55 GW average in 2021 amid below average wind speeds across NW Europe.

Finally, new interconnector commissioning between France and Italy and France and GB, will help integrate new renewables in 2022 while a booming battery storage sector in the GB should trim excessive balancing costs seen in recent months.

NEW EUROPEAN POWER ASSETS 2022

NEW GAS-FIRED CCGTs
MW
Country
Start
Landiviseau
450
FRA
Q1 2022 start
Keadby 2
840
UK
Q2 2022 start
VW Wolfsburg
500
DE
2022
Herne 6
600
DE
2022
Agios Nikolaos
825
GR
2022
NEW REACTORS
Olkiluoto 3
1650
FIN
June 2022 COD
Flamanville 3
1650
FRA
Dec. 2022 fuel loading
Mochove 3
471
SLO
2022
NEW INTERCONNECTORS
Savoie-Piedmont
1200
FRA-ITA
Q1 2022
ElecLink
1000
FRA-UK
mid-2022

Source: Developers, S&P Global Platts