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European coal fired generation is benefiting from a strong euro making gains against the dollar since a court ruling has released the European Central Bank to buy up bonds of troubled Eurozone members.
E-World 2025
A strong euro increases the purchasing power of European utilities that buy coal in the dollar-traded coal market, but produce electricity that is sold in euros domestically.
The euro has risen almost 5 per cent since the German Supreme Court declared it legal for the European Central Bank to buy up the bonds of troubled euro zone governments.
"Coal has already been the fuel of choice for utilities that can switch between coal and gas, because there is a coal oversupply while gas is a bit tight…the rising euro will only strengthen that trend," said one trader.
Profits from German coal-fired facilities that sell their electricity for baseload supply in 2013 are at €11.30 per MWh, while the equivalent gas margin is at -€9.3 per MWh.
This means that that in Germany gas-fired power generation is only profitable at high-priced peak demand hours between 0800 and 2000, and that coal power plants are over €20 per MWh more profitable than gas units.
Exchange rate pass through is extremely significant in determining coal margins currently.
With current market prices under Europe's emissions trading scheme, coal profit margins vary by €23 per MWh between the euros' historic high and low against the dollar.
At the high of $1.60, German power plants would sell electricity delivered in 2013 at a profit of €16.25 per MWh, while at its low of $0.83 they would make a loss of 6.97 euros per MWh.
This makes German coal-fired generation more profitable than current gas plants, even at the euro’s lowest historical exchange rate.
This poses a puzzling problem for EU energy policy, which seeks a long-term shift from coal-fired generation to gas, with its lower emissions.