(MENAFN - Arab News) Coal could join gas in making losses in Germany's struggling power market, as a continuing renewable energy boom and slumping power demand force utilities to rethink their strategy.
Wind and solar power have seen massive capacity growth driven by priority grid access plus 20-year government-guaranteed subsidies.
Soaring renewables capacity has collided with falling power demand to crush fossil fuel margins.
That will lead to faster closure of old conventional capacity, especially gas and hard coal, and a halt to new fossil fuel investment with risks for baseload back-up when renewables are unavailable.
All is certainly not lost for fossil fuel generation, especially given its trump card of flexibility, but utilities must re-consider a strategy which until recently largely comprised optimizing fossil fuel assets in traded markets. The clean gas spread illustrates how optimizing conventional assets does not work on its own.
The spread measures the short-run profit margin from operating gas plants after allowing for the cost of fuel and carbon emissions permits. The clean gas spread is presently deep in the red, given low power demand and flat or rising gas prices, at around minus 15 euros per megawatt hour, as calculated using wholesale market prices for year-ahead British gas and German power. (Chart 1)
Utilities record less catastrophic levels, presumably because they can secure gas at more favorable prices.