Race to the Bottom – Gas vs. Coal Plant Operation

Author: ABB European Advisors

The following post was written in May 2014 by the European Advisors team.

Fossil plants are being squeezed by increasing volumes of cheaper (in marginal cost terms at least), “must run”, renewable generation. “Winners” and “losers” are becoming evident, particularly if you compare gas and coal plant performance.

Carbon trading should have made gas a clear winner, but a glance at the relative prospects of the two fossil fuels in Germany, as an example, shows the reverse is true. Coal generation market share is holding firm as it proves to be consistently cheaper than gas, and able to flex sufficiently to cover higher priced hours (when there is a scarcity of cheaper renewable generation).

German Load Factors (% running hours)

In contrast, in the British market, the race to the bottom is being “won” by the coal generators, as the carbon support mechanism imposed by the UK government boosts the carbon price and makes coal plant relatively more expensive to run.

However, you couldn’t really call gas plant winners as even the most efficient H-tech gas plant reach a cliff-edge in 2020 as residual demand collapses and domestic fossil plant is largely relegated to providing peaking service only to cover cloudy, still periods of low renewable generation.