Coal’s demise quickens in Europe amid market shift

Bloomberg

Commodity markets are stripping away the case for coal in Europe, moving quicker than government efforts to close the most polluting power plants.
A plunge in natural gas prices along with an increase in the cost of releasing carbon dioxide emissions shifted the profitability of generating electricity away from burning coal, according to data compiled by BloombergNEF. The trend is evident in Italy, Spain, Germany and the UK, each of which have cut the proportion of coal in their power mixes this year.
Shifting economics in the power business are complementing the efforts of the European Union to slash greenhouse gases and make good on commitments in the Paris Agreement on climate change. It’s made utilities from RWE AG in Germany and Italy’s Enel SpA change their calculations about the pace the region will be able to reduce carbon pollution.
“It’s a magical alignment that’s igniting and accelerating a transition that, without the economics, would be much harder,” said Antonello Cammisecra, who is in charge of Enel’s gas, coal, oil and green power generation worldwide. “We have an alignment of economics, of saying switch to gas and most importantly switch to renewables because it’s cheaper, safer and easier.”
The shift in Europe is part of a global trend.
Abundant supplies of cheap gas are cutting in on coal’s market share in the US, where plants burning the dirtiest fossil fuel closed at near record rates last year. New export terminals are exporting cheap American gas worldwide, prompting countries across Asia, especially China and Pakistan, to buy LNG as an alternative to coal for power generation.
“The exit from coal is finally driven by the market,” said Claudia Kemfert, a professor of energy economics at the DIW research institute in Berlin. “The repair of emissions trading has worked.”
Coal output across Italy, France, Germany, Spain, Portugal and Britain fell 40 percent from a year ago in the second quarter, according to S&P Global Platts Analytics. The proportion of coal in the UK power mix has plummeted from more than 35 percent a decade ago to about 4 percent now, due in part to targets set by government to eliminate the fuel from electricity generation by 2025.
While the drop-off has been nowhere near as dramatic in other leading European economies, the phaseout is starting to take hold both because of policy moves and shifts in the market.
Gas is trading near its weakest levels in a decade, and EU carbon allowances are double the price they were a year ago. The benchmark year-ahead coal contract has tumbled from $100 a ton to as little as $62 a ton.
The result is that the case for switching off coal plants in favour of gas has rarely been stronger. For almost all of this year, it has been far more profitable to switch on gas-fired generators and halt ones burning coal, according to BNEF. That marks the longest period that the cost of energy has remained in that “fuel-switching” territory.