[Ferro-Alloys.com] Sharp increases in EU emissions trading system (ETS) allowance values in recent sessions have worsened market conditions for German coal-fired power generation for next year, with around 46pc of the fleet priced out of the base-load market.

 

The outlook for medium-efficiency coal-fired power plants in Germany for the second and third year ahead also weakened.

 

EU ETS market prices have increased sharply in recent sessions, with the December 2021 contract closing at €29.99/t of CO2 equivalent (CO2e) yesterday, up by 30pc compared with a month ago, Argus data show.

 

The German front-year base-load contract is highly correlated to the European carbon market given its carbon-intensive energy mix, but its gains were slower, up by 12pc since 8 June to €43.35/MWh in yesterday's session. Slower gains in year-ahead cif ARA coal swaps, up by 7pc during the same period to €7.04/MWh yesterday, have failed to offset faster gains in carbon and power costs.

 

Clean dark spreads for a 40pc-efficient unit for 2021 closed yesterday's session at minus €0.80/MWh, the lowest level ever recorded for these units. Spreads for these units declined from €1.65/MWh a month ago and have been in negative territory since 29 June.

 

During the same period last year, equivalent spreads for 2020 base load — the then front year — were at €5.98/MWh, and expired at €0.89/MWh on 31 December.

 

Germany has around 17.2GW of operational coal-fired power plants, according to most recent data from Bnetza, including the recently launched 1.1GW Datteln 4 unit. An analysis of official and assumed efficiencies suggest that around 8-9GW of coal-fired units have an efficiency of 40pc or below, meaning almost half of Germany's coal fleet could be out of the German merit order next year on a base-load basis.

 

Coal-fired operators could find an incentive to run during peak-load hours as spreads closed at €8.80/MWh in yesterday's session.

 

Medium and high-efficiency coal-fired units have already been unprofitable to operate on a base-load basis so far this year. Working day-ahead clean dark spreads have averaged minus €6.48/MWh for a 40pc-efficient unit and minus €2.05/MWh for a 46pc-efficient plant.

 

On a day-ahead hourly basis, only hour 19 has seen positive clean dark spreads, at an average of €0.65/MWh so far this year for a plant with an efficiency of 40pc. Spreads have averaged higher for the same hour in the intra-day market at €1.01/MWh.

 

Coal-fired generation has averaged 3.26GW this year so far and made up 5.9pc of the German generation mix, compared with 9.5pc in 2019, given higher renewables output, lower power demand and better market conditions for gas-fired generation, which is well embedded in the German merit order.