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Coal price drop sees German coal-fired power margins recover

German coal-fired power generation margins have recovered from record-lows as European coal prices fell over $10/mt since late January, while outright power prices fell back to their lowest since August.

S&P Global Platts data shows the German year-ahead clean dark spread (CDS) for a 35% efficient old coal unit rebound to minus Eur1.80/MWh by close Friday widening again the premium for even the oldest coal plants compared with modern gas units to almost Eur2/MWh.

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 rally for EUA carbon allowances, which reached a 2012-high at Eur9.56/mt.

However, coal into Europe for the year-ahead fell from above $87/mt on January 29 to open Monday just above $75/mt amid bearish signals from the Asian market ahead of the Chinese New Year this week, according to sources.

Other coal market sources also referred to the selloff in global equities last week, the lack of support on the spot from a mild and windy winter in Europe as additional bearish factors for coal.

Outright power forward prices extended their downward trend amid easing political pressure to close coal from the next coalition government in Germany with the German year-ahead power price falling below Eur33/MWh for the first time since last August, Platts data shows.

FRONT-MONTH SPARK SPREADS BELOW DARK SPREADS

Meanwhile on the near curve, gas-fired power generation margins remained below coal margins for even the oldest coal units with a cold snap last week and possible further production cuts at the Groningen gas field in the Netherlands supporting the near-term gas curve more than coal.

The month-ahead clean spark spread (CSS) for a 50% efficient gas plant remains below minus Eur3/MWh, while the CDS (35% eff) rebounded towards break-even, the data shows, indicating higher generation margins for coal plants in March.

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 with a slight rebound seen so far in February when both coal and gas output rose to their highest since last winter, TSO data shows.
Source: Platts

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