German Power to See Record Coal-to-Gas Switch This Summer

This article first appeared on the BNEF mobile app and the Bloomberg Terminal.

  • Dutch gas price signals ultimate summer coal-to-gas switch
  • Hard-coal and lignite output in May extremely low

Extremely low gas prices in northwest Europe signal maximum brown coal-to-gas fuel switching in Germany’s power sector this summer. Gas output has displaced an unprecedented amount of hard coal and lignite megawatts in May and this is set to continue for the rest of the summer. Many hard-coal and lignite units could see low or no utilization way ahead of their phase-out dates.

The Dutch gas price, the benchmark for northwest Europe, is trading below the lignite-to-gas fuel-switching range in the period May-September. This means that the most inefficient gas-fired power station should be dispatched before the cheapest lignite generator, the one that pays only for the cost of emissions.

In the first three weeks of May, average lignite and hard-coal output was 46% and 49% below the average for May 2019, respectively. This is equivalent to an average drop of 5.4 gigawatts in lignite and 2.1 gigawatts in hard-coal output.

Low coal output could affect utilities such as RWE AG, Lausitz Energie Kraftwerke AG, Uniper AG and EnBW AG.

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