Gas-fired plant margins fall, but generation already exceeds last year’s in Czechia

Margins for gas-fired power plant operators in Central Europe are coming under pressure due to higher natural gas prices and the currently slightly lower price of carbon allowances. After significantly better margins in the middle of the year, they will again cede part of their share of electricity generation to coal-fired power plants. Nevertheless, it is certain that this year’s generation from plants burning natural gas will be substantially higher than last year. 

Market conditions for electricity generation from natural gas are returning to normal after the summer period, which was characterised by low natural gas prices, and CCGT margins (clean spark spreads) are gradually declining.

The main reason is the rising price of natural gas, which has returned from around 10 EUR/MWh to above 15 EUR/MWh. Compared with the summer period, gas-fired generation will therefore face greater pressure, but its high share this year can no longer be jeopardised.

Natural gas gained a high share this year primarily thanks to favourable margins (compared with coal-fired power plants), which have remained high virtually since April this year.

With two months remaining before the end of the year, more electricity has already been generated from natural gas than in the whole of last year, both in Germany and in the Czech Republic. According to data published by Energy-Charts.de, 46 TWh of electricity has already been generated from natural gas in Germany this year, compared with just 44.5 TWh last year.

In the Czech Republic, preliminary data provided by ENTSO-E show that generation from natural gas stands at 5.884 TWh, compared with only 5.021 TWh last year.

The reason for the current rise in gas prices is primarily the approaching winter period, when prices are higher due to expected demand for heating. Whether the winter period is actually milder or not will also affect withdrawals from storage facilities, which could in turn affect gas prices for next year.

Margins for CCGT plants and hard coal-fired power plants are a closely watched indicator in Central Europe because they are among the so-called marginal plants. A marginal plant is the last in the so-called merit order, and its generation cost determines the price on the wholesale market.