Analysis: Dutch CCGTs to profit from baseload power in Q3

Natural gas-fired generators look set to make a profit for baseload power generation in the second half of this summer.

The clean spark spread, a measure of the profit margins for gas-fired power plants that take into account the price for carbon emissions, for Q3 ’15 was €1.20/MWh on 01 May 2015 according to ICIS calculations.

Long term

The long-term future of gas-fired power plants does not look profitable for baseload power generation in the Netherlands for the next two years at least, according to ICIS calculations.

The clean spark spreads are negative for the Year 2016 and 2017 products. This means gas plants would lose money for generating baseload power with current prices.

In spite of the spread becoming less negative since the start of 2014, a break into positive territory is unlikely, according to market participants.

“The current level is negative for Year ‘16,” said one power trader active in the Dutch market. “I do not think it will be positive before the start of its delivery.”

This is preventing new gas generators in the Netherlands from being built. The 1.3GW Claus C plant was mothballed in 2014 and the new 1.2GW Eemsmond Energie giant gas-fired power project by Advanced Power remains in suspension and this is not expected to change until 2017 at the earliest.

But ICIS calculations point to a longer timescale until gas plants will profit.

The profitability of CCGT plants looks set to decrease as time goes on, as the baseload spark spread for 2017 is more negative than its 2016 equivalent. This is partly because of a long-term bearish outlook for power prices, with increased zero marginal cost renewable generation to enter the market.

Profits

Peak power generation, between the hours of 08:00 and 20:00, for the coming two years continues to look profitable.

This suggests gas-fired power plants will continue to switch on at times of peak demand. This means gas will continue to be the price-setting fuel in the Netherlands, and the Dutch power market will continue to be influenced strongly by price movements on the TTF gas hub. abigail.beall@icis.com