European Coal Prices Rise as Profitability Jumps This Winter

(Bloomberg) -- Demand for coal in Europe is increasing ahead of the winter as rising gas prices make the dirtier fuel more profitable to burn to generate power.

Coal plants in Germany remain significantly more profitable than gas plants, even as the benchmark intraday price for the dirtier fuel rises to its highest level in a month and carbon trades near a record above 70 euros. The spark-and-dark chart for the first quarter of next year, estimating profitability for the different fuel types, shows coal margins above 80 euros and gas with negative margins. 

German Spark and Dark chart for first quarter 2022:

High fuel prices already are showing across Europe as colder weather reached the continent and the U.K. this week. U.K. hourly power prices surpassed 1,000 pounds per megawatt-hour in an auction for Tuesday evening as low winds lead to more coal plants turning on. German and French day-ahead power for Wednesday rose to the highest level since Oct. 6 in auctions on Epex spot, trading at 273.89 and 295.82 euros, respectively. 

“We’re starting to see again the familiar signs of conventional thermal power sources having to step in to fill the gap left by intermittent renewable generation,” Victory Hill Capital Advisors LLP said in a note on the U.K. energy mix. “Should this trend continue into December and January, it is likely that power prices will again rise to seasonal highs as national grid calls on more gas and coal to meet demand.”

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