Germany’s renewable energy expansion will threaten the profitability of coal-fired power plants during the summer season within a few years time, figures show.
According to the ICIS hourly price forward curve (HPFC) for the German power market combined with commodity prices, coal plants will still be profitable during some summer hours.
However, there will be more days when coal-fired capacity cannot make a profit not just at night when demand is low, but also around midday when solar power production peaks.
German gas-fired plants already face such circumstances, being able to run profitably only for a few hours.
But erratic profitability would hit coal plants even harder because they are less flexible.
“In general, coal plant flexibility is more costly to maintain than gas,” Peter Zeniewski, analyst at consultancy Wood Mackenzie said.
This means several older coal-fired plants might be forced to go offline if their number of profitable hours drops.
Summer price pressure
If Germany’s solar power capacity growth quickens to the extent that it meets the 2.4-2.6GW annual expansion target, summer prices in the country will be under considerably more pressure than winter prices in coming years, the HPFC indicates.
The HPFC gives a likely power price for each hour of the day until the end of 2019 based on existing forward prices, hundreds of possible weather scenarios and assumptions about renewable expansion. More can be seen by clicking here.
The curve indicates that German spot prices will average €16.75/MWh in the second and third quarter of 2019 while they will average €25.06/MWh in the winter quarters of the year. For comparison, spot prices are forecast to average €22.78/MWh in the second and third quarter of this year and €26.53/MWh in the fourth quarter, according to the HPFC.
Offline for summer?
The average clean dark spread for coal plants with 35% efficiency will be negative at -€1.85/MWh in the second and third quarter of 2019, according to the HPFC, using European coal and carbon forward prices and the ICIS-assessed German power price.
The clean dark spread is a theoretical measure of hard-coal-fired plant profitability that takes into account the cost of emissions certificates.
Most plants need spreads considerably higher than zero to operate in the longer term, Bengt Longva, analyst at consultancy Nena, said. This is because the spreads do not take into account investment costs needed, for example, for plant refurbishments.
Coal plants might not turn off if facing just one or two days of negative spreads, but if their profitability becomes worse in the summer, they might decide to go offline for the season, Longva said.
Baris Ozalay, an expert at consultancy E-Bridge, considered it unlikely that plants would go offline for the whole summer, considering that they have fixed costs that need to be covered even if they do not produce power.
Some coal plants might bid successfully to become part of Germany’s planned capacity reserve, Ozalay said.
The reserve will initially be filled with lignite-fired plants, but in a few years, various technologies can compete to become a part of it via tenders. Higher flexibility might give gas-fired plants an advantage at tenders, but experts think coal-fired plants will also stand a chance.
Plants in the reserve could not sell power to the wholesale market.
Take or pay
If summer clean dark spreads fall as low as expected under the HPFC for 2019, more flexible coal plants are likely to turn off at night or even at night and around midday, ICIS analyst Ann-Kathrin Kotte said.
“Where possible, older, less flexible plants that are not locked into long-term supply contracts may try to mothball or go on an extended maintenance period,” she added.
However, many lignite-fired plants are tied to “take or pay” fuel supply contracts. This means they might decide to run even when not making profit, to compensate for inevitable fuel costs, at least to some extent. But this would not be sustainable in the longer term, Kotte said.
In the longer term, often occurring negative spreads are likely to force older coal and lignite plants off the market, which would support power prices and could slow, or even halt, the decline of spark and dark spreads. firstname.lastname@example.org