As lockdowns eased across Europe and electricity demand returned to pre-COVID levels, carbon allowance prices rose to record levels in the second quarter.
New research from energy data analyst EnAppSys shows that carbon allowance prices have more than doubled since Q2 2020. EU Emissions Trading Scheme prices soared to a record 56.54€/te on June 30, 2021, which made up around 30% of the breakeven marginal cost of generation for an average coal power plant on that day.
The impact of coronavirus lockdowns on European electricity demand appeared to have ended in the latest quarter, with total demand only 0.4% lower than levels seen in Q2 2019. This is associated with the development of the embedded generation capacities.
Power generation levels across Europe fell 13% from Q1 2021, which meant a reduction in output from most fuel sources except solar (up 127%) and oil (up 1%). However, all of the renewable generation types, except hydro, saw their highest output levels in a Q2, due to the increase in renewable capacity across Europe.
Renewable generation (including biomass and waste) contributed 43% of the total output, continuing the trend of renewables having the largest share of the generation mix since Q4 2019. Hydro remained the largest individual component of renewable generation at 125.2TWh, 37.6TWh more than the second largest renewable generation component, wind at 87.6TWh.
Fossil fuel generation was 18% down from the previous quarter, yet still at Q2 highs of 212.1TWh despite the coal phase-out efforts and the high carbon allowance prices.
With lignite still used as baseload generation in many European countries, output from this source (49.7TWh) was 11.8TWh higher than that produced from hard coal.
Nuclear contributed 26% of total output, gas 18% and coal/lignite 13%.
In the UK specifically, gas contributed 41.2% to the fuel mix in the quarter, followed by renewables with 32.3%, nuclear with 16.4%, imports with 9.3% and coal with 0.8%.
Coal continues its phase-out with Drax units 5 and 6 now closed for commercial generation, although they remain open for activity in the Capacity Market (CM) while the government brings forward the coal phase-out date from October 2025 to October 2024.
The UK saw levels of nuclear generation also fall from the previous Q2, prolonging a Q2-on-Q2 decline since the second quarter of 2017. The main reason for the reduction from Q2 2020 was that Sizewell B1 and B2, Hunterston Generator 8 and Heysham 2-7 were offline for long periods between April 1 and June 30, 2021.
Jean-Paul Harreman, director of EnAppSys BV, said: “CCGT-fired generation has been rising since Q1 2018 on a quarterly comparison basis – except during the pandemic-affected quarters – as the need for flexible generation increases.
“The reason for this growing demand for flexible generation is because more renewable capacity is being built and the phasing out of conventional coal and lignite sites has created a power generation shortfall, especially during periods of peak demand and low renewables.”
“In this quarter, we saw very high gas prices which made coal generation competitive with gas generation despite the high carbon allowance prices, when long run-hours possibilities arose in the market.
“Therefore, the countries that we observed to have made the most significant contribution to the European level reduction of coal and lignite-based generation were driven by coal phase-out policies.”
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