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High German power prices may herald coal return – analysts

(Montel) An anticipated rise in German power prices this autumn should encourage the return of some coal-fired capacity, after the country’s coal burn hit a decade low this summer, but headwinds remain, analysts told Montel this week.

German day-ahead power prices could rise to around EUR 39.25/MWh this month on average, which would be the highest since November 2019, exchange data compiled by Montel showed.

For Monday, the German day-ahead price spiked to EUR 54.04/MWh, the highest spot out-turn since 1 February 2019.

“Prices are rising now as we are heading towards the autumn and winter season and that could lead to a restart of coal plants,” said Sigurd Lie, senior analyst for continental Europe at Oslo-based StormGeo.

Out of the money?
“Some gas plants are maybe close to losing out in the competition against [the] most efficient coal plants. Over the summer, this hasn’t been the case at all,” he added.

In June, German hard-coal output dropped to 1.34 TWh, data from ISE Fraunhofer think tank showed, the lowest monthly level since 2010, when the institute began collating records.

Since then, however, production has gradually increased to reach 1.90 TWh in August.

As well as rising power prices, recent French nuclear outages – due to cooling water issues and low river flows, along with fuel saving – also helped coal to regain ground, said Wayne Bryan, director of European gas research at Refinitiv.

Analysts at Engie Energy Scan noted the strong rise in delivery prices at the start of the week triggered a significant spike in German coal-fired generation – from 2.761 MW on Friday to 6.078 MW on Monday.

On the other hand, gas-fired plants saw their highest output on record in July, at 6.47 TWh, which fell slightly to 6.15 TWh in August.

Headwinds remain
But while conditions were improving somewhat for coal, headwinds remained, Lie said.

The cost of running a coal plant based on October prices for carbon, coal and power still stood at EUR 37.97/MWh, around EUR 10 higher than for those running a gas plant, a Montel calculation of the so called short-run marginal costs showed.

And there were other factors that could hamper the resurgence of coal-fired generation in Germany, such as early indications of a mild winter, Montel reported last month.

The demand outlook for power in Europe in light of the coronavirus pandemic, as well as the wider macroeconomic outlook, remained bleak, Lie said.

German GDP would not fully recover until early 2022, German energy and economics minister Peter Altmaier said on Tuesday in his latest economic outlook.

“I am not sure [power demand] will get back to normal at all,” Lie said. “During this time, we have seen several smaller companies that have gone bankrupt and some won’t come back again.”

Reporting by:
Julia Demirdag
12:15, Wednesday, 2 September 2020