Falling gas costs, rising carbon prices spur change in fuel dynamics
PARIS, Feb 21 (Reuters) - Falling gas prices over recent weeks have paired with rising coal and carbon costs to make European power generation from gas-fired power plants more economical, marking a trend reversal since coal took over as the cheaper fuel source last year.
Analysts say the switch in so-called clean-dark and clean spark prices indicates that gas power is becoming more competitive from a cost perspective, but supply security remains challenging, especially for countries that used to rely on Russian gas.
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The clean-dark and clean-spark spreads are the prices paid for the operation of a coal- or gas-fired power plant respectively, when adjusted for mandatory carbon emissions permits and fuel purchases.
The countries that could see significant coal-to-gas switching are Germany, the Netherlands and Italy, Refinitiv analyst Nathalie Gerl said, while Germany will need to fill a 4 gigawatt (GW) generation gap as the country permanently phases out nuclear in April.
However, the gas price would need to fall a bit more to replace more efficient coal plants, she added.
Germany and other European countries relied heavily on both coal and gas power during the energy crisis last year, with coal's share of the power generation mix rebounding after mostly falling over the previous decade.
Competition between the two fuel sources is expected to be much closer in 2023, but there will not be a large-scale coal-to-gas switch as gas is still tight, Rystad analyst Fabian Ronningen said.
Prices have fallen since the import of liquefied natural gas (LNG) has improved during the winter, but should level out as they reach the average long-term LNG contract price.
The Dutch benchmark wholesale gas contract slipped to a new 17-month low on healthy supply earlier, while European carbon allowances (EUA) reached a record high over 100 euros per tonne.
(Reporting by Forrest Crellin; editing by Vera Eckert)