High European gas prices push power producers back to coal

• Coal generation expected to increase 27% in Q4 2026, while gas-fired generation will drop by a similar amount, with coal remaining cheaper than gas potentially until March 2028
• Germany's coal capacity is near its practical limit, leaving little room to respond to further gas price spikes, especially after nuclear plant closures in 2023 reduced system flexibility
• The 'clean dark spread' (coal profitability measure) has soared while the 'clean spark spread' (gas profitability) has plunged since the conflict began in late February

Summary: European Power Producers Return to Coal Amid Soaring Gas Prices

Key Development: European utilities are shifting back to coal-fired power generation as surging natural gas prices make coal plants more profitable than gas facilities for the first time since at least 2024.

Primary Catalyst: Conflict in Iran has disrupted LNG shipments through the Strait of Hormuz, pushing European benchmark gas prices above €80 ($90.98) per megawatt hour in September—a three-year high.

Critical Figures:

• Coal-fired generation expected to jump 25% over the next six months
• Gas-fired generation projected to decline by a similar amount
• Q4 2024 coal use anticipated to surge 27% year-over-year
• Gas prices may need to reach €100/MWh before additional fuel switching occurs

Market Dynamics: The "clean dark spread" (coal profitability metric) has soared since the conflict began in late February, while the "clean spark spread" (gas profitability) has plunged, reversing the economics that had been phasing coal out of Europe's energy mix.

Geographic Focus: Germany, Europe's largest power market and gas consumer, will operate coal plants near practical capacity limits in Q4, matching the strongest quarterly output from its remaining fleet.

Long-term Outlook: Coal is expected to remain more economical than gas through 2025 and potentially until March 2028, according to analyst Marta Wroniszewska at Veyt. This persistence reflects traders' expectations of continued supply constraints.

System Constraints: Years of coal plant closures and Germany's 2023 nuclear shutdown have reduced flexibility, limiting the power sector's ability to respond to further gas price spikes. The situation presents challenges for Europe's decarbonization goals as the continent relies on coal through at least two more winters.