Rising gas prices trigger sharp demand for coal in Europe

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• • Coal powerplants are gaining massively with falling coal prices and surge in demand for energy amid the natural gas shortage
• • Amount of electricity produced from coal across Western Europe, rose 20% in September and October compared with a year earlier

The rising natural gas prices in Europe have bumped up demand for cheaper sources of energy. This is where coal power plants have jumped in and are profiteering off the surge in demand for energy amid the natural gas shortage. Consequently, all efforts to cut carbon emissions have taken a backseat.

Demand has been increasing with the reopening of economies, particularly in Asia, which has caused wholesale prices to surge. At the same time, challenges such as a decrease in domestic production and adverse U.S. weather conditions have made restocking gas supplies difficult.

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Forecasts of falling temperatures across Northern Europe, in the final week of November, a lull in the wind, low gas storage across Europe, strong global demand for LNG, and reduced flows from Russia via Ukraine over recent months have lifted gas prices to record highs.

And then came coal

To counter the shortfall in energy and the abnormally high rates for natural gas, coal, and lignite (brown coal), are being used to generate power. Coal prices have fallen since October after China introduced new policies to revive coal production and loosen imports of the electricity-generating fuel.

This implies that electricity generating powerplants in Europe are getting paid a large sum to produce electricity using coal whose price has deeply fallen in the past month.

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Wall Street Journal reported that forward energy and carbon markets show coal power stations will be more profitable than their gas rivals until 2023.

Hoarding and distributing power

Germany, the biggest user of coal and lignite in Europe, has generated 40 gigawatts of electricity from the two fuels in September and October, reported WSJ.

Meanwhile, Poland who is also heavily dependent on the fossil fuel to meet its energy requirements is now exporting electricity to Central and Eastern Europe.

The report also mentioned that the amount of electricity produced from coal across Western Europe, rose 20% in September and October compared with a year earlier.

To counter the shortage of gas, utilities are burning coal and lignite to generate energy, even when European carbon permits are at record highs. Emission prices have jumped 13% over the past month to about €67 ($75.80) per metric ton of carbon dioxide. 

Searching for better alternatives

In October, the European Union's head of climate change policy told Reuters that the return to using dirty energy from coal during the current energy crunch is "not a smart move" and markets should seize the opportunity to transition into renewables.

"It will be a tragedy if in this crunch we will start investing again in coal, which is an energy that has no future and is extremely polluting," said European Commission Executive Vice President Frans Timmermans.

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His advocacy of renewable energy came at a time when the wind across Europe had slowed down, affecting the generation of power using wind energy. However, wind across Northwest Europe was forecast to surge from November 17 again deflating spot power prices and reducing demand for gas in the power sector.

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(With inputs from Wall Street Journal)

Picture Credits: Getty Images (Politico)