Coal drives European power switching anchor lower

As we laid out in our feature article on Monday, European gas to coal switching economics are back in focus as the key anchor for Summer 2023 gas prices, and potentially a floor for Winter 2023 gas prices. In this snapshot we therefore turn to a quick update on European coal & carbon prices, the key ingredients of switching channel economics.

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Carbon front month prices are at a three-month low, but steady vs levels at start of 2023:

• Compliance demand reduces following April deadline
• Low power sector demand and significant switching away from coal to gas for the first time since 2021 reduces buying interest.

European coal prices have dropped by 70 $/t (~40%) since the start of the year:

• Demand fell 11% year on year in Winter 2022/23 with low power demand, coal closures and rising renewables
• Pacific coal prices retain significant premium as Australian supply suffered disruptions alongside some returning Chinese demand.

Summer switching dynamics are set to return European gas, coal & carbon prices to a more correlated state than we saw across 2022.

Source: Timera Energy

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