German natural gas-fired power plants have moved towards profitability this winter, but low coal and carbon allowance prices mean that burning coal will remain more financially attractive for the foreseeable future.

Increased subsidies for new, efficient gas-fired power plants are unlikely to threaten coal’s appeal, according to some traders active on the German market. Oversupply is keeping coal prices low and European emissions allowance prices are failing to encourage a switch to more environmentally friendly fuels.

Gas prices have fallen throughout the winter in Germany, driving improvements in the spark spread, ICIS data shows. This is an indicative margin at which power stations can sell electricity from gas-fired generation. Dark spreads, the indicative margin at which electricity is sold from coal-burning, have also been improving, albeit at a slower rate.

This means that at some peak periods, gas-fired plants are now outperforming coal. On 12 January, the clean peak spark spread was at €5.13/MWh for February ’16, assuming plant efficiency of 49.13%. This was above the clean dark spread assuming a 35% efficient coal plant, which was at €4.61/MWh.

This marks a substantial improvement since the beginning of December, when the clean dark spread for the front-month was €5.77/MWh and the clean peak spark was -€1.02/MWh.

This trend has had some impact on German spot gas hubs, particularly on the prompt. But most traders contacted by ICIS – from energy supply firms and trading houses – considered it unlikely that burning gas would become consistently more profitable than coal in the foreseeable future, with one saying that it is “not even on the horizon.”

“There is a long way to go for that,” said another trader. “With power so weak there would have to be a lot of additional gas supply to accelerate the price drop compared to power.”

“Or we would need some big regulatory action,” he continued. “The CHP [combined heat and power] subsidies aren’t enough to incentivise gas-burning.”

The German government recently announced a doubling of subsidies for more efficient CHP plants in an effort to promote gas above coal. Several of these plants will be commissioned in the next two years.

But this is being counteracted by the decommissioning of conventional gas-fired capacity. German regional utility ENERVIE plans to shut down 853MW of gas plants over the course of 2016 as spark spreads have not improved enough.

However, the superior efficiency of CHP plants will also change the threshold at which gas-fired generation becomes profitable. ICIS assessments assume a gas plant efficiency of either 49.13% or 52.11%. But the 445MW Gemeinschaftskraftwerk Bremen, which will come online in the middle of 2016, will have an efficiency of 58.29%. doug.grant@icis.com