New wind and solar now competes with existing coal and gas

  • €20/t carbon and high coal & gas prices creates a new tipping point
  • It’s never been easier to phase-out coal

Today, the European carbon price hit 20 Euros. Our analysis shows rising carbon, coal and gas prices mean that for the first time new onshore wind and solar can compete with the short-term costs of generating electricity from existing coal and gas plants.

The cost of generating electricity from both coal and gas has surged since 2017. Since the start of 2017, year-ahead coal generation costs have increased by 72% to €46/MWh, and gas generation costs have increased by 43% to €49/MWh.

This is based on Thursday market close prices when CO2 was priced at €20.42. The generation costs will be underestimates – they are calculated using only the raw input fuel and carbon costs.

The true cost of generating electricity from coal and gas plants includes many real-world costs that are difficult to asses: they are commercially sensitive and differ substantially by plant.

They include coal transport/handling, gas entry/exit/transit, operations & maintenance, investment, water/ash disposal and air pollution abatement. In the case that new investment needs to be made – for example, installing new pollution equipment to a coal plant – the additional costs will be substantial.

Wind and solar prices, meanwhile, have been trending in the opposite direction. They fell massively through 2017, and remain low in 2018. In Germany’s renewable auctions, both wind and solar have had two auctions each where the lowest bids were around €38/MWh.

The chart above shows both coal and gas generation costs breached through the €38/MWh earlier this summer, and now – at €46/MWh and €49/MWh respectively – they now sit comfortably above the cheapest wind and solar bids.

This makes it the first time that wind and solar auction prices have been demonstrably lower than short-run costs for existing coal and gas plants.

The rise in coal and gas generation costs is due not only to the rising carbon price, which has quadrupled in the last year, but also due to higher coal and gas prices. The year-ahead European coal price has risen by 30% since Jan-2017, and the year-ahead European gas price has risen by 28%.

Analysis this week by Carbon Tracker suggests the carbon rally may continue, reaching €25/tonne by year-end, and €35/tonne next year, as reforms to the EU Emissions Trading System finally take effect. This will further increase the costs of fossil generation, as externalities of climate damage are priced in.

Using gas as a “bridge” fuel away from coal doesn’t seem logical given that gas generation costs are similar to coal generation costs  – instead moving from coal to clean looks more prudent, as we demonstrated in detail in our May 2018 report on the UK power market, Coal To Clean.

The increasing competitiveness of renewables, against even existing coal and gas plants comes at an important time for the electricity transition in Europe. The German Coal Commission is set to decide on a phase-out date for the German coal fleet before the end of this year.

Our analysis shows that with the rise in commodity and carbon costs, and cheaper wind and solar, it has never been easier to rapidly phase-out coal with wind and solar.

Source: Sandbag.org. Reproduced with permission.

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