Price developments of hard coal, gas and emission allowances favoured a fuel switch from coal to natural gas last year. This is shown by a short analysis carried out by an EWI team using the updated EWI Merit-Order Tool 2020. The focus is on the effects of different price developments on the average merit order of the German electricity market.
Last year, the development of spot prices of hard coal, natural gas and emission allowances caused structural changes in the average merit order of the conventional power plant fleet. Falling spot prices for natural gas met with rising prices for emission allowances (EUA) in the course of 2019, while the prices for hard coal fell relatively slightly (Figure 1).
As a result, the order of power plants in the average merit order of conventional power plants in 2019 (Figure 2 below) has also changed significantly compared to 2018 (Figure 2 top), as calculations using the tool show. While the marginal costs of most lignite-fired power plants in 2018 were lower than those of hard-coal and gas-fired power plants, 2019 shows that the marginal costs of the generation technologies lignite, hard coal and combined cycle gas turbines (CCGT) have converged significantly.
“Based on our assumptions, the mean marginal costs of efficient combined cycle power plants were lower than the marginal costs of the most efficient hard coal-fired units,” says EWI Research Associate David Schlund, who developed the tool together with Dr. Simon Schulte and Fabian Arnold.
This development can also be seen in the production output of the last two years: Compared to 2018, electricity generation from gas-fired power plants increased by approx. 10.3 TWh in 2019, while electricity generation from lignite and hard coal decreased by approx. 53.5 TWh (source: smard.de). Other reasons for the decline in coal-fired power generation are the increase in electricity generation from renewable energy sources and the decline in German net electricity exports. The latter can – at least in parts – also be attributed to the change in the merit order of the power plants in the European electricity market.
In December 2019, the EWI published the EWI Merit-Order Tool 2019 for the first time to determine the average merit order of conventional power plants for the year 2018. For the Merit-Order Tool 2020 the authors have now updated fuel prices, CO2 prices, power plant availabilities and the underlying conventional power plant fleet to the year 2019. The new version of the tool can be downloaded here for free. We are happy to announce that an English version is now also available.