With Jaw-Dropping Gas Prices, Coal Is King Again in Europe

Natural Gas Prices and Coal Energy Production in Europe

Not long ago, it seemed that Europe on its path towards decarbonization should start departing from coal towards cleaner sources of energy. Personally, I wrote on several occasions that time for coal generation had actually run out across most of Western Europe. But, as often happens, the reality has become quite different.

One could hardly have expected as recently as Q1 2020, when coal-fired plants were in fact put on the sidelines amid record-low gas prices, that in a three-year time coal would recover its positions within the continent’s power generation mix. In Q1 2022, the share of electricity coming from coal in Germany rose to above 30pc as compared to just over 20pc in the period from January to March 2020. And this despite the fact that the country’s installed coal power capacity was reduced by approximately one fifth over the past three years.

With gas prices stuck at sky-high levels since late 2021, other Western European countries that possess any significant amount of coal power plants, namely Italy and the Netherlands, have followed the same trajectory.

And do you remember the last time NWE front-month clean dark spread for a 40pc-efficient unit stood lower than clean spark spread for a medium-efficiency gas plant? This happened most recently in July 2021. Since then the gap between the former and the latter has averaged some €60/MWh.

Conclusion

Record-high gas prices have provided perfect conditions for the renaissance in European coal power generation. Naturally, if there had been more nuclear capacity available in Germany for instance, the rise for coal-fired generation might have been somewhat more modest. However, strange as it may sound, coal has partially mitigated the effect of energy crisis hitting the continent in recent months.

The opinions expressed in this blog are mine only and do not reflect the views of my employer.