Emissions prices promote fuel switching in European power

Commodity price trends, market balance and delayed Brexit are reshaping the level and impact of allowance prices in the EU ETS. Sitting at an 11-year high of around €27/tCO2, the cost of emissions is reshaping the supply curve of Europe's power markets – placing increasing volumes of gas generation ahead of coal. Even in Germany, with its relatively modern and efficient hard coal fleet, carbon's bull run is having a material impact on power generator's choice of fuel. With the threat of a no-deal Brexit at least postponed, UK emitters are back in the market, lifting the demand for allowances. With carbon prices also influenced by the operation of the market stability reserve and movements in coal and gas prices, we examine the drivers of fuel switching in European power.