Coal phase-out not yet priced into German power far curve

Author: William Peck


LONDON (ICIS)--ICIS analysts believe that the German power far curve does not yet reflect price increases that will result from the coal phase-out that the country’s coal commission will be discussing on Tuesday and in later meetings this year.

Even in scenarios where Germany phases out coal and lignite plants at a slower pace, the ICIS Power Horizon model, launched on Monday, simulates annual average prices comfortably exceeding €50.00/MWh in 2021 and reaching around €55.00/MWh in 2022.

Depending on the speed of the phase-out, German power prices would then peak between €57.00/MWh and €60.00/MWh before correcting downwards towards 2030, factoring in lower carbon prices and renewable capacity growth.

ICIS assessed the German power Calendar Years 2021 and 2022 Baseload contracts at €44.60/MWh and €46.00/MWh respectively on Friday, suggesting that the phase-out is not yet priced into the market.

In fact, German power clean dark spreads are backwardated, indicating that traders believe that power will become cheaper to produce over time.

Conversely, the ICIS energy analytics team expects the simultaneous shutdown of coal, lignite and nuclear plants over the next five years which would necessitate a switch to other forms of generation and turn Germany into a net power importer at least in 2023. Even with a slower coal phase-out, a continuing uptrend in European carbon is expected to pull up German power prices.

The German government tasked the coal commission with recommending measures to meet climate targets while protecting security of power supply and regional economies in mining areas. It will also assess the impact of a coal phase-out on power prices and competitiveness, ahead of a German climate protection act scheduled for 2019.

An ICIS market analysis published on Monday describes a moderate coal phase-out as the most likely option based on the current political debate in Germany.

Under this scenario, combined lignite and hard coal capacity would fall by 4.5GW by 2020 from the current 42.7GW, and to below 20GW by 2030. Under the slow phase-out scenario, combined lignite and coal capacity would still exceed 30GW by 2030.

Germany’s seven nuclear reactors are scheduled to shut down between 2019 and 2022.

Interested in learning more about long-term power market analysis? Register now for a free trial of ICIS Power Horizon, a pan-European power price forecast service by contacting .