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Coal price drop sees German coal-fired power margins swing above gas

London (Platts)--2 Feb 2018 913 am EST/1413 GMT


German coal-fired power generation margins have recovered from record lows in January as European coal prices fell some $6/mt this week, with forward gas prices more stable after falling in January.

* European coal down over $6/mt on week as gas stays stable

* Year-ahead power at 3-month low on bearish politics

* Strong euro offsets higher EUA carbon impact

S&P Global Platts data shows the German year-ahead clean dark spread (CDS) for a 45% efficient old coal unit rebound above Eur4/MWh by close Thursday with even the CDS (35% efficiency) for the oldest coal plants again above modern gas plants.

In January, the clean-spark spread (CSS 50% efficiency) for a modern gas unit rose above CDS (35%) for only the second time since 2011 amid coal near record-highs, bearish gas due to the very mild winter so far and a surprise 10% rally for EUA carbon allowances, which reached a 2012-high at Eur9.56/mt.

However by Friday, EUA carbon fell back below Eur9/mt, with the stronger euro, which reached a 3-year-high against the dollar above $1.24, making dollar-nominated coal again cheaper for eurozone buyers.

Coal into Europe for the year-ahead fell from above $87/mt last Friday, its highest close so far this year, to below $82/mt Thursday amid bearish signals from the Asian market ahead of the Chinese New Year, according to sources.

In addition, outright power prices turned bearish amid easing political pressure to close coal from the next coalition government with the German year-ahead power price falling to a three-month-low below Eur34/MWh Friday.

FIRM GAS SEES SPARK SINK BELOW DARK SPREAD

Meanwhile, gas-fired power generation margins fell back this week on the back of firm gas prices amid colder weather forecasts for February as well as possible further production cuts at the giant Groningen gas field in the Netherlands.

The year-ahead clean spark spread for a 50% efficient gas plant fell back to minus Eur3.13/MWh Thursday, down from a 2018-high at minus Eur1.61/MWh Monday, the data shows.

For the month-ahead, the swing back in favor of coal was even starker with the CSS falling below minus Eur4/MWh and CDS (45%) remaining firmly in positive territory for March, indicating higher generation margins for coal plants again, the data shows.

Output from German hard-coal fired power plants fell 16% in 2017, mainly due to coal plant closures on the back of worsening generation margins, while gas-fired output increased marginally compared to 2016 despite a worsening performance during Q4 amid rising gas prices.

In January, both coal and gas were squeeze by record wind with coal output falling 50% on year and gas-output (from reporting CCGT plants) down 57% on year compared to January 2017, TSO data shows.

--Andreas Franke, andreas.franke@spglobal.com

--Edited by James Leech, james.leech@spglobal.com




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