(Montel) A combination of high carbon and low fuel prices in June saw gas plants outcompete lignite-fired generation, slashing German generators’ EUA demand by a third, the Fraunhofer ISE institute said on Tuesday.
By comparison, gas units were able to lock in total fuel and carbon costs of between EUR 24-28/MWh, Fraunhofer ISE said.
As a result, German lignite generation plunged 38% year on year in June to 7 TWh, while hard coal output fell 41% to 2.6 TWh, according to Fraunhofer data.
Gas-fired generation climbed by 62% to 3.7 TWh, with the remaining difference in output among the technologies mostly reflected in greater renewable energy production and a slump in exports that turned Germany into a minor net-importer of electricity.
"The welcome side effect of these purely market-driven events was a significant reduction in carbon dioxide emissions from fossil power generation," said Bruno Burger, the creator of Fraunhofer ISE’s Energy Charts data.
"They fell by 33% from 17.3m tonnes in June 2018 to 11.5m tonnes in June 2019.”
Lignite power plants have traditionally been Germany’s most competitive source of power generation. They also tend to produce about a tonne of carbon emissions for every megawatt hour of electricity they generate, compared to around 350 kg of CO2 for a gas plant.
Together with nuclear units, lignite plants have sat at the front of the so-called merit order.
This decides which installations get to supply power on any given day based on operating costs. Lignite’s costs have been especially low relative to hard coal, gas and oil-fired sources of power for the past decade thanks in large part to low carbon prices on Europe’s emissions trading scheme.
But a concomitant surge in carbon and a plunge in gas prices has radically altered this picture.
Carbon this week reached an 11-year high above EUR 29/t. The benchmark contract has climbed 80% over the past 12 months.
Traders expect the record of around EUR 30/t to give way imminently while consultancy Icis forecasts prices to reach EUR 40/t over the next 4-5 years thanks to EU supply reforms that have tightened the market.
German day-ahead gas prices by contrast were down roughly 50% year on year in June as they averaged around EUR 10.80/MWh.
A global supply glut of LNG has arrived on the back of a mild winter and relatively full inventories to depress gas prices in Europe and Asia this year.