Natural gas-fired power plants in Europe are becoming profitable again as falling gas prices improve their competitiveness. German gas-fired plants recorded positive profitability on December 7, reaching the highest levels since February 2012. Gas units operating continuously in France have been profitable for seven consecutive weeks, marking the longest profitable stretch in four years. The decline in benchmark European gas prices by 12% in 2016, following a 31% drop the previous year, has contributed to this trend.
The increased profitability of gas-fired power plants is attributed to their lower emissions compared to coal, making them a greener option for supporting intermittent renewable energy sources such as wind and solar. However, gas has struggled to compete with more profitable coal in recent years, leading utilities like EON SE and Statkraft AS to close gas units. Societe Generale SA predicts that the price of gas in Europe will continue to fall as cold weather ends and the decline in oil prices influences long-term contracts.
According to industry experts, the most efficient gas-fired plants are gradually replacing the least efficient coal plants. While there is still a long way to go, this shift is expected to have a positive impact on overall emissions in Europe. The profitability of gas plants is influenced by factors such as fuel and power costs as well as emission costs. In Germany, the measure of gas plant profitability during peak hours fell slightly to 6.07 euros ($6.58) per megawatt-hour, while in France, the measure for baseload plants rose to 5.72 euros per megawatt-hour.
Engie SA reportedly doubled the output of four of its French gas-fired plants in 2015, including the reactivation of a previously idle unit in Fos-sur-Mer. The low gas prices in France are leading to increased competition between gas and nuclear power, as gas-fired stations can offer the lowest-cost generation. Currently, France relies on nuclear power for about 75% of its electricity generation.
The improved profitability of gas-fired power plants may lead to an increase in gas consumption in Europe’s power market. This winter, gas consumption in Europe has been about 6% below normal, but rising spark spreads could change this trend.
