Rising EU emissions trading system (ETS) prices have almost halved the profitability of modern lignite-fired power plants in Germany beyond 2024, taking almost half of the country's lignite fleet into loss-making territory based on current forward prices.
Clean lignite spreads for a unit with an efficiency of 43pc — the highest for this technology in the country — for 2024 were at €5.96/MWh yesterday, based on assumed lignite costs of €2.85/MWh and Argus' over-the-counter (OTC) assessments of German power and EU ETS allowances. Germany has around 3.6GW of lignite-fired capacity with this efficiency — units built in the 2010s.
Generating margins for the most efficient lignite-fired plants have fallen by 48pc since 15 December, when Argus began assessing 2024 EU ETS allowances, as EU ETS price have risen sharply. EU ETS December 2024 was assessed at €33.25/t CO2 equivalent (CO2e) on 15 December and closed yesterday's session at €43.06/t CO2e. EU ETS allowances account for around 92.3pc of breakeven costs for a lignite-fired plant with this efficiency. Clean lignite spreads for the same efficiency and 2025 base load closed yesterday at €4.46/MWh, down by 60pc since the beginning of this year.
Almost half of the country's lignite fleet will be unprofitable to run from 2024, based on current forward generating margins. Clean lignite spreads for a unit with an efficiency of 36pc have averaged minus €2.06/MWh this month. Generating margins for units with this efficiency have been negative since 2 February.
German lignite-fired capacity currently stands at around 16.87GW, of which around 8.22GW has an efficiency of 36pc or lower — units built in the 1980s or before. Around 49pc of all lignite-fired units with a capacity of 100MW or higher are priced out for base load.
Around 2.52GW of capacity is earmarked to close from end of this year until end of 2022. This will leave German lignite-fired capacity at 15GW from 2023 and around 5.7GW from 2025-29. This means that around 35pc of the operational capacity in 2024 would be running at a loss. The remaining 8.2GW of lignite-fired capacity will close in 2033-38.
Positive in the short term
Looking closer in, generating margins for these 36pc-efficient lignite-fired units remain positive although they have also been under pressure, nearing negative territory in recent sessions. Clean lignite spreads narrowed to €0.54/MWh yesterday, down by almost 90pc since the beginning of the year.
Around 900MW of lignite-fired capacity is earmarked to close at the end of this year.
German lignite-fired generation this quarter has been higher year on year supported by lower than average wind and periods of colder than average weather. Stronger increases in power prices than in the EU ETS have supported margins for lignite-fired plants. Working day-ahead lignite spreads for a 36pc-efficient plant have averaged €4.09/MWh since January, compared with minus €3.21/MWh during the same period last year, based on Argus assessments.
But the outlook for these units for the spring period is not expected to be profitable for base load, as demand for heating declines and solar power generation increases. Current power prices suggest that only a unit with an efficiency of 42pc or higher is priced in for base load during the April-June period, although with narrow margins.
