High EU CO2 price reduces coal power share in German electricity generation

Europe’s CO2 price for the energy and industry sector (EU ETS) has reached a record 38 euros per tonne. In Germany this has caused electricity production from coal-fired power plants to be replaced by gas power in early February, which is normally more expensive and therefore less used in the country’s power system. Even the most modern and efficient lignite-fired power plants that are usually able to generate power at low costs by using lignite mined nearby have been beaten by gas-fired alternatives due to the high costs for CO2 emission allowances, Jakob Schlandt writes in Tagesspiegel Background (behind paywall). This development is aided by low gas prices and the fact that some of the most modern coal-fired power stations were mothballed at the beginning of the year as part of Germany’s coal exit, analyst Mirko Schlossarczyk from consultancy Enervis told Tagesspiegel Background.

Even before this latest peak in allowance prices, the merit order, denoting the order of deployment of power plants in Germany, had shifted significantly in 2020. Gas-fired combined heat- and power plants benefited from low gas prices and were able to displace lignite-fired plants. Experts struggle to identify a fundamental reason for the EU ETS price being so high at the moment, leading some to believe that it might be due to speculation and will not be sustained by the market.