Barcelona — Spanish utility Endesa is to bring forward the closure of its 4.6 GW domestic coal-fired capacity by a year to 2021, amid a structural change in market conditions, CEO Jose Bogas said Tuesday.
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Factors such as CO2 prices and a weak gas and LNG market have increasingly pushed coal out of the generation mix in Spain. That enabled Endesa to beat a 2020 target of 290 grams of CO2 per kWh a year early -– a figure it intends to repeat this year.
Spain's largest operator of coal-fired plants said it will close two plants -- the 1.1 GW unit at Litoral and 1.4 GW unit at As Pontes -- by next year, while confirming the closure of the 1.0 GW Compostilla and 1.1 GW Teruel plants by the middle of this year.
The closures will leave Endesa with 241 MW of coal-fired capacity at its Alcudia plant on the island Majorca, which recently shut half its capacity and has a target closure date of 2030.
Overall, Endesa said it booked a Eur1.9 billion ($2.05 billion) financial impairment to account for the early closures, including Eur500 million for dismantling costs.
Part of the company's strategy in coming years is to replace the closing coal capacity with renewables, having added 926 MW in 2019 and acquired a pipeline of 1 GW from industrial group Prodiel at the end of last year.
The company sees 3.7 GW coming online in 2020-2022 and a further 1.7 GW just after, with a total pipeline of 19.1 GW and a target of 60% of renewables in installed capacity by 2022 from 39% in 2019.
Bogas, speaking on a results call, said the company would likely pursue a mixture of participating in government auctions and merchant capacity, including replacement capacity in the sites of closing coal plants.
Coal generation was the worst-performing sector in the company's 2019 generation mix, with output falling 66% to 7.6 TWh, or an operating rate of around 18% as generators principally switched to gas-fired output.
The company was able to use the lower procurement costs to drive up its unitary power margin by 7% in 2019 to Eur27.60/MWh. While unitary revenue edged up 70 euro cent/MWh on the year to Eur67.80/MWh, unitary costs dropped Eur1.20/MWh to Eur40.20/MWh, it said.
For 2020, Endesa has hedged 100% of its forecast production at an estimated all-in price of Eur65/MWh -– a similar level to 2019 -– while it expected that level to remain in place through to 2021, for which it has already hedged 63% of its expected output, leaving an estimated 13 TWh of open position.
It estimated it can increase its 2021 unitary margin to its target of Eur30/MWh given current gas forward prices, since CCGTs are expected to set the marginal price going forward .
The surge in CCGT demand was also beneficial to the company's gas margins, which more than doubled from Eur1.60/MWh in 2018 to Eur3.40/MWh, boosted by a 70 euro cent/MWh contribution from CCGT sales, it said.
Endesa's gas sales to CCGTs increased 26% year on year to 20.0 TWh even as LDZ gas sales volume dropped 10% to 66.8 TWh on milder weather.
Bogas said more flexible sourcing and active portfolio management had been a factor in the gas performance.
Endesa's portfolio meant around half its contracted supply is from LNG long-term contracts and half is pipeline gas, which is indexed to Brent.
The company said it recently canceled two LNG cargoes from its US supplier Cheniere and opted to purchase spot cargoes instead, with prices near Eur10/MWh.
The current situation with coronavirus meant there was a lot of gas in the market looking for a home, Bogas said.
Looking forward, Endesa said it expected to see a recovery in gas prices towards its strategic plan assumption of Eur20/MWh by 2021.
Endesa Iberian 2019 capacity and generation