(Bloomberg) -- Power production from coal is ticking up in Germany as the falling price of carbon dioxide emissions makes the polluting fuel more competitive with gas-fired plants.
Much of the cost of running a lignite-burning plant comes from having to pay under the European Union’s emissions trading system. Benchmark carbon futures for December have fallen more than 8% since the end of May, helping boost the profitability of the CO2-intensive plants.
“Carbon cost is key to determining lignite power plants’ competitiveness, much more so than it does for natural gas and hard coal power plants,” Citigroup Inc. analysts, including Maggie Xueting Lin, wrote in a note. “Hence, the weakness of EU carbon prices relative to natural gas prices will favor lignite dispatch, and vice versa.”
German year-ahead power rose as much as 1.5% Tuesday to €89.39 per megawatt-hour on the European Energy Exchange.
EU carbon rose as high as €78.10 ($85.133) per metric ton in late May before falling 9% in June. In recent years, the permits were seen as a one-way bet that could only go up as the bloc leaned on higher costs of emissions to help push fossil fuels out of its power grid.
But a confluence of factors — including rising gas prices, a surge of renewables and demand destruction by polluting industries — saw permits plummet from a high of more than €100 in the beginning of 2023.
Renewables Are Booming in Europe and Crashing Its Carbon Market
While coal has been outperforming gas recently, fossil fuels as a whole are still on a downward trajectory in Germany’s power grid. In June, coal plants produced about 19% of its electricity, compared with 22% a year earlier, according to data from the climate think tank Ember.
Wind and solar, meanwhile, made up about 47% of generation in June.
--With assistance from Priscila Azevedo Rocha.
©2024 Bloomberg L.P.
