German spot down on renewables, cheap coal, slowdown
By Andreas Franke in London
German spot power prices in 2012 were on average 17% lower than in 2011
as renewables continued to boom and generation costs dropped due to falling
prices for coal and carbon allowances, while growth in Europe's largest
economy came to a standstill.
According to Platts data, German day-ahead, over-the-counter power
prices for baseload delivery averaged Eur42.95/MWh in 2012, compared with
Eur51.69/MWh in 2011. (See related chart: German day-ahead baseload (Eur/MWh): January 3 - December 31, 2012).
Prompt prices were bearish for most of the year, but
there were more spikes than in 2011 mainly due to the extreme cold spell in
February. In total, there were seven days with day-ahead baseload settling
above Eur70/MWh on power exchange Epex Spot, of which six days were in
February, compared with none in 2011.
In OTC trading, day-ahead baseload peaked on February 8 at Eur86/MWh, Platts data shows.
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However, with wind
power surging over the Christmas holidays, Platts assessed day-ahead OTC
baseload power in negative territory for the first time ever, closing
December 25 at minus Eur10/MWh.
The same contract on Epex Spot cleared at
minus Eur56.87/MWh with December 26 also settling below zero.
Low demand, carbon crash keeps pressure on forward power prices
On the forward curve, prices were also bearish with the year-ahead
contract ending 2012 at a three-year-low.
Core contract Cal 13 base fell to Eur44/MWh on December 27, an all-time
low for Cal 13 and the lowest for year-ahead power since December 2009,
Platts data show.
The average 2012 closing price for OTC year-ahead baseload power was
Eur49.27/MWh, down 12% or almost Eur7 from the 2011 average of Eur56.05/MWh.
In 2010, the year-ahead contract averaged Eur49.90/MWh, Platts data shows.
Germany's economic slowdown and increased focus on energy efficiency
subdued industrial demand, with 2012 domestic electricity consumption
estimated at 594 TWh, down around 2% from the previous year, according to a
first estimate from utility lobby group BDEW.
Market sources say price and demand weakness will persist in 2013 due to
the bearish economic outlook for Europe as well as a higher contribution from
renewables, cheap coal prices and much cheaper carbon prices.
Gas fired margins suffer
Trading sources have told Platts there is a growing disconnect between
gas and power prices because coal-fired power plants are increasingly
becoming the dominant price-setting units for the majority of days.
This is in part due to the continued boom in solar PV installations,
which reduce the operating hours of gas-fired units, as well as the sharp
decline in carbon allowance prices since 2011, which makes coal-fired power
generation more profitable.
In 2012, German year-ahead profit margins for using gas-fired power
plants to produce electricity fell to their lowest in over four years.
Consequently, the share of gas in total power generation plunged below 10% in
the first half of 2012 with total gas-fired power output at 26.5 TWh, down
Platts data for December 20 shows the German year-ahead clean spark
spread -- the theoretical profitability of a 50% gas-fired power plant when
taking into account the cost of fuel and emissions allowances -- at minus
Eur11.84/MWh. This compares with a positive spread in December 2011.
Year-ahead gas prices at the Dutch TTF trading hub have remained just
below Eur27/MWh, within 4% of a high reached in April 2011 in the wake of the
Fukushima nuclear disaster.
By contrast, year-ahead power has shed more than
25% from its post-Fukushima-high.
Meanwhile, the year-ahead clean dark spread for coal-fired power plants
remained around Eur10/MWh for most of the year with year-ahead coal into
Europe trading near its lowest level since May 2010 at around $96/mt, almost
30% below post-Fukushima-highs in April 2011.
This widened the gap between coal- and gas-fired profit margins to more
than Eur20/MWh in 2012, the widest gap between the two fuels on record for
Power generation from coal creates more carbon emissions than power
generation from gas and is therefore more sensitive to movements in the
carbon price, which has shed most value over the past 18 months amongst
power-related commodities power, gas, coal and carbon.
European Carbon Allowances dropped below Eur6/mt for the December 2012
contract, some 60% below carbon's post-Fukushima-high of Eur18.27/mt in May
Article continues: Renewables hit new record in 2012