Coal, Electric Power, Energy Transition, Renewables

January 28, 2025

Last winter hurray for thermal coal in Europe amid rising renewables

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HIGHLIGHTS

Solar power generation in EU overtook coal for first time in 2024

Europe's coal imports slumped over 30% to 36.7 million mt

Q1 coal generation seen slightly above year-ago periods

In a significant resurgence before an expected phase-out, European thermal coal imports soared in the fourth quarter of 2024 to their highest level since Q1 2023, despite significant renewable energy growth in the region.

Europe's total thermal coal imports in Q4 2024 rose to 8.5 million mt compared with 5.2 million mt in the previous quarter, according to S&P Global Commodities at Sea(opens in a new tab) data. The previous quarterly high was 10.8 million mt in Q1 2023, the CAS data showed.

The rise in imports was driven by an improvement in the appetite of utilities as volatility in gas prices coupled with weaker wind generation and lower-than-expected temperatures led to a higher burn rate as spreads turned profitable for power producers, market participants said.

"The higher gas price has helped a bit and spreads have improved but they're still not great (to sustain in the long run)," a Germany-based trader said.

For instance, German coal-fired power generation margins improved significantly in the last quarter as Platts, part of S&P Global Commodity Insights, assessed German front-month clean dark spreads for 45%-efficient plants at an average of Eur13.83/MWh over in October-December, compared with a 2024 average of minus Eur10.76/MWh.

The strengthening of demand was reflected in the rise in prices as Platts-assessed CIF ARA 6,000 kcal/kg NAR coal price averaged $117.15/mt compared with $113.45/mt in the previous quarter. However, the Q4 average price was lower than $125.65/mt from a year ago, indicating overall weakness in thermal coal usage in Europe.

On the other hand, wind power generation in the European Union remained largely unchanged at 477 TWh despite the push from authorities to add more capacity as less favorable wind conditions weighed on the output, according to a Jan. 23 report from London-based think tank Ember.

In total, the EU avoided 92 billion MMBtu of gas imports and around 55 million mt of hard coal in the power sector since the end of 2019, the report highlighted.

"A new wave of coal plant closures is imminent: another 11 EU countries have announced a complete phaseout of coal from their electricity mix within the next five years. This means that only seven countries will still be using coal by 2030, with at least 34 GW of the remaining 101 GW of operating coal plants closing by that date," the report noted.

Steadier times in store before final goodbye

In 2024, Europe's coal imports slumped over 30% to 36.7 million mt from a year ago as the push from European authorities saw many more coal-fired power plants closures, while shifting focus and investments in renewables.

Coal generation has decreased in 16 of the 17 countries that still used it in 2024, and is now marginal or absent in most systems, making up less than 5% of the electricity mix in 16 member states, the think tank said.

Germany at 39% and Poland at 34% make up the majority of coal power remaining in the EU. However, both witnessed a decline of 17% and 8%, respectively, in coal generation during the year, the report said.

Meanwhile, solar power generation in the EU has overtaken coal for the first time in 2024 amid huge capacity additions as the region added a record high of 66 GW of solar capacity with a 22% year-over-year increase in generation, the think tank said.

The EU's total solar generation in 2024 stood at 304 TWh while coal's total generation fell to 10% of the EU's total power mix, the report highlighted. Industry observers believe that effective grid infrastructure is required to sustain the growth momentum in solar capacity going forward.

However, the volatility in the gas market coupled with favorable weather conditions for coal burn during parts of January is likely to make clean dark spreads more favorable for coal-powered plants in Q1, market participants said.

"I think the bull case would be that gas storage levels are moving lower and there will be more pressure to build stocks in time for next winter and that should keep gas prices relatively high," the trader said.

Additionally, Uniper's Datteln-4 -- one of the major coal plants in Europe -- will come back Feb. 5 after a fire in early October led to a temporary closure. It could also add to the demand for thermal coal in the region, market participants said.

"Hopefully, we will need to buy some more (thermal coal) on her (Uniper's DatteIn-4 plant) return," the trader highlighted.

The trend for lower gas for power is likely to persist in 2025 with Germany and Italy expecting demand to average 4.4 GW and 9.3 GW, according to the latest forecast from Commodity Insights.

Germany's coal burn during H1 2025 is forecast to be about a fifth higher year on year, according to analyst estimates.

According to analysts at Commodity Insights, "Forecasts for January and Q1 2025 have coal generation slightly above the same periods of 2024 as coal profitability (clean dark spreads) support running."


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