Germany, And The UK, And The Netherlands…, Double Electricity Production With Coal, Whose Price Has Risen 100% In The Last Year

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ASE Group | The most ferocious electricity price increase in history, in Spain and Europe, is driven by two fundamental factors: the 1000% annual increase in world gas prices and the high price of CO2 emissions, which continues to escalate thanks to the EU’s push for decarbonisation policies.

Gas shortages in Europe, brought about by a combination of low imports of liquefied natural gas (LNG) – due to Asian demand pressure – and a very low volume of flow in Russian pipelines, have pushed gas prices up by 1000% in the last year.

On the other hand, CO2 emission prices have risen by 60%, driven up by the European decarbonisation policy and the consequent speculation of large investment funds. And combined cycle power plants (CCGT) that use this gas are the ones that set the marginal price in European electricity markets.

This time last year, the opportunity cost that determined the supply of a combined cycle was €40/MWh. Now it is around €100/MWh. 85% of this rise is explained by the increase in the price of its raw material, gas, on the markets.


Gas has risen so much that coal-fired plants are now competitive. In recent months, Germany has reduced its gas-fired power generation by 36% while doubling its coal-fired generation. Similar developments have occurred in the UK and the Netherlands. This upsurge in coal demand has driven up the price of coal by 100% in the last year.


European gas reserves are currently at 60% of their capacity, more than 20 points lower than a year ago and well below their average at this time of year. Europe will face the winter with significantly lower reserves than usual.


Therefore, if the winter is cold in Europe or Asia, gas prices could rise even higher than last year, given that Europe then had ample reserves. Futures markets are picking up this strong risk premium and the last quarter of 2021 is trading at €50/MWh (TTF), setting an all-time high.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.