No coal-gas fuel-switch impact from low German river levels

LONDON (ICIS)–Dwindling flows on the river Rhine have no major impact on German coal or natural gas-fired power generation, according to a study by ICIS.

This suggests that coal plants have been able to secure supplies at a marginal cost difference even when barges have difficulty navigating waterways. Combined-cycle gas turbines have therefore been unable to take advantage of tight margins for coal plants by ramping up output.

A major fuel switch is therefore unlikely to result from the current low Rhine waters unless the dryness worsens severely.

Reduced flows

Shallow river levels have disrupted logistics operations since a heatwave struck Europe over the summer. This has left coal stranded at key import terminals in the Netherlands and Belgium, meaning plants supplied via the Rhine have at times had to reduce their output or shut down entirely.

The German Federal Institute of Hydrology measured the level at the key Kaub shipping chokepoint at 36cm on Friday and forecast this to fall further into week 46. Flows are set to remain above the low of 25cm recorded in late October, but well below normal depths around 200cm at this time of year.

Barge operators start to reduce loads and increase fees to compensate when the Kaub water level falls below around 150cm.
Coal output steady

ICIS plotted monthly German coal-fired power generation since 2013 and separated months in which the average water level fell below 100cm at Kaub.

Coal output was not noticeably lower than in surrounding months, and in fact was elevated and spiked at times. Two of the four months with the highest coal-fired power generation over this period saw restricted flows at Kaub.

Gas competes with coal in the German power mix, ramping up and down as the economics suit. ICIS plotted coal’s share of combined gas and coal generation to control for the possibility that general power tightness supported coal output when Kaub flows fell. Gas is supplied by pipeline so is unaffected by the river level.

The results here are even clearer. Since 2013, coal’s share has waxed and waned according to economics and seasonal factors, but without any apparent regard for the Kaub water level. Coal’s share actually surged amid the recent dryness, as gas prices rose simultaneously with storage stocks low heading into the winter.

The lack of impact could be due to:

• Plants relying on their own stocks and managing demand

• Alternative means such as rail supplying coal to plants, with surcharges not significant enough to affect margins

• Well-supplied coal plants in other parts of Germany ramping up at a marginal cost difference compared to units on the Rhine

• Water levels not falling low enough for a sustained enough period to affect coal margins

Looking at the maximum recorded water level within a month instead of the average did not change these findings.