ANALYSIS: German coal extends dominance in power mix as gas wanes

London (Platts)--9Oct2013/737 am EDT/1137 GMT


Germany's coal-fired power plants increased their dominance in the generation mix in the first nine months of the year as output from natural gas-fired power plants and wind turbines dropped, according to an analysis of data that German think tank Fraunhofer Institute (ISE) collected.

German Dark Spreads: 10 Jul - 8 Oct, 2013

Coal plants increased production by about 5%, or 8.4 TWh, to 189.4 TWh in the first three quarters of 2013 as output from gas-fired power plants fell 6.5 TWh, or 18%, to just 29 TWh compared with the same period of 2012, data that ISE compiled from the EEX transparency platform and Germany's statistical office show.

Of the coal total, domestic lignite-coal contributed 108.1 TWh (+3.4%), while hard-coal-fired power plants generated 81.3 TWh (+6.5%) of electricity in the January-September period.

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Wind turbine output dropped 8% to 29.9 TWh, but still moved ahead of gas-fired output in the first nine months, the data shows.

Solar power output registered a 5% rise to 26.2 TWh, it said.

Nuclear output during the period dropped 2.6% to 66.7 TWh, while hydro plant output rose slightly to 13.2 TWh, the data shows.

Overall, electricity demand in Germany declined 1.6% during to the first half of 2013 to 260.1 TWh, according to German utility group BDEW's latest estimates. According to market sources, there have been no signs of a demand recovery during the third quarter.

In 2012, coal-fired power plants generated 45% of total electricity demand in Germany, followed by renewables, with a 22% share, nuclear at 16% and gas at around 11%, according to Germany's statistical office.

CHEAP CARBON EXTENDS COAL'S DOMINANCE IN GERMAN POWER MIX

For 2013, coal-fired power's share in the German generation mix is on track to rise above 50%, an analysis of the data shows.

Meanwhile, renewables may struggle to improve on last year's record 22% contribution, mainly due to lower wind power generation in the first quarter, but this will depend on weather scenarios during the final quarter.

Gas-fired power's share in the generation mix will drop below 10%, with even the most modern CCGT plants now seriously under-utilized, but still needed for security of supply during the winter months.

The crash in EUA carbon allowances, lower coal, but firm gas prices are the key reason for this trend, making coal-fired power generation more profitable than gas.

The gap between the clean dark (coal) and clean spark (gas) spreads, the general measure of profitability for coal and gas plants, has widened to Eur26/MWh based on year-ahead contracts for power, coal, gas and carbon emissions, Platts data shows.

According industry sources, EUA carbon allowances would have to rise above Eur40/mt to make a switch from coal to gas profitable.

Coal prices have dropped by more than a third over the last two years, falling to a three-year low below $82/mt on October 4, according to Platts data.

Carbon prices plunged to a record low earlier this year, but rebounded above Eur5/mt in September, compared to levels around Eur20/mt in 2011.

By contrast, gas prices have remained firm, with TTF year-ahead gas at around Eur26/MWh, little changed from where it traded in July 2011, Platts data shows.

This means profit margins for using coal-fired power plants to produce electricity for delivery in Germany next year have risen to their highest level so far this year. Platts data for October 7 showed the German year-ahead clean dark spread widening to Eur9.18/MWh, its highest since December 2012.

By contrast, the German year-ahead clean dark spread for gas-fired power plants remained negative at minus Eur16.17/MWh, underlining the difficult environment gas-fired power in facing in Germany with even the most modern CCGT plants, like E.ON's Irsching power plant in Bavaria, forced into special measures as redispatch plant.

LIGNITE, HARD-COAL USED FOR POWER GENERATION

Germany uses domestic lignite coal as well as mainly exported hard-coal for power generation.

Lignite-fired power plants, which generated more than a quarter of the nation's electricity in 2012, benefited most from the lower carbon prices, with lignite plants more carbon intensive than coal plants, according to industry sources.

Lignite capacity now stands at around 20 GW, with some 3 GW of more efficient plants added since 2011, running like nuclear as baseload plants around the clock.

Older coal-fired power plants are increasingly becoming the price-setting "marginal" plants, according to market sources.

7.3 GW NEW COAL PLANTS SET TO COME ONLINE BY 2015

Germany may add more efficient coal-fired power plants over the next quarters as a number of legacy fossil-fueled projects will finally come online.

Overall, German power plant operators plan to add 7.3 GW of new coal-fired capacity by 2015, with around 4 GW set to come online before the end of the first quarter of 2014, according to a Platts survey of plant operators.

The projects include Vattenfall's Moorburg plant (1,600 MW), EnBW's RDK 8 (912 MW), Steag's Walsum 10 unit (725 MW) and GDF Suez's new coal-fired power plant at Wilhelmshaven (800 MW). Trianel's new 750 MW coal-fired plant at Luenen is already in operation.

Germany's biggest power generator, RWE, said Monday that the start of operations at its newly built 1,600 MW hard coal-fired plant at Hamm will be delayed to March 2014 after an unintended inflow of chemicals damaged the boiler.

--Andreas Franke, andreas.franke@platts.com
--Edited by Jonathan Fox, jonathan.fox@platts.com

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