By Jacqueline Echevarria
February 17, 2021 - Generation from German coal-fired plants has remained firm this month, supported by higher demand and below-average wind. But forecasts for milder weather combined with high CO2 prices have pushed more coal out of the forward market for March.
Generation from German coal-fired plants has averaged 6.69GW this month so far, which is similar to January, and the highest February level since 2019. Coal-fired output reached its highest on 11 February at 9.82GW.
Despite firm output month on month, generating margins for less efficient coal-fired plants have been narrower this month, compared with January. Working day-ahead clean dark spreads for 36pc efficiency have averaged €0.35/MWh in February compared with €1.44/MWh in January.
German wind power generation has been higher this month at an average of 16.49GW, up from 15.55GW last month but still below the 17.84GW five-year average for February. This combined with below-zero temperatures — particularly during the second week of February — and consequent higher demand have helped to keep coal almost unchanged on the month. Consumption has averaged 60.85GW so far in February and is on track to end it at the highest level for any month since February 2019.
But a decline in NCG gas prices from last month combined with higher CO2 prices has prevented coal-fired units from increasing their output on a monthly basis. German gas-fired generation has averaged 9.16GW and again a new record high for any month.
Working day-ahead break-even costs for a 55pc-efficient gas-fired unit have averaged €47.99/MWh, compared with €51.61/MWh average costs for a coal-fired plant with an efficiency of 40pc. This compares with a switch in the merit order last month when 40pc coal-fired plants had costs averaging €48.37/MWh, and were marginally ahead of 55pc gas-fired units at €48.54/MWh.
Demand for German power exports has continued to decline, limiting domestic coal burn, with net flows at around 8GW, lower on the month and the lowest for the period since 2017. Germany has been an importer from the Netherlands, Belgium and the Czech Republic, net day-ahead flows show.
Forward power prices suggest that coal-fired generation is likely to be under pressure next month.
Assuming the last trades for March delivery for API 2 coal swaps, EU emissions trading systems allowances and NCG gas prices this morning, a coal-fired unit with an efficiency of 45pc or higher would be priced in for base load next month, but with narrow margins, given break-even costs of €46.56/MWh. Around 5.62GW of coal-fired units with a capacity of 100MW or higher have a nameplate or estimated efficiency of this or higher. They would be behind a 55pc-efficient gas-fired plant in the merit order, as the latter had break-even costs of €45.39/MWh this morning.
Weather forecasts suggest above-average temperatures for the remainder of the month and slightly below the long-term average for early March, easing regional heating demand expectations.
Wind power levels are forecast to average 18.41GW from 17-22 February, which is above average levels for the month and those seen in the first half of this month. But wind power output tends to decline in March, to an average of 15.47GW in the last five years. Wind power generation has been below average so far this winter.
The German March base-load contract is trading at €47.25/MWh and at narrow premiums to CWE markets, suggesting import potential and so limited demand for German coal burn.
German power demand could be supported if the current lockdown ends on 7 March, when schools and some businesses will be allowed to open depending on the number of infections.