European Power Prices Slide to Record as Coal Slumps on Surplus

European power prices dropped to records as thermal coal slumped to the cheapest level in almost three years amid a glut of the fuel.

French baseload electricity, for delivery around the clock, declined 0.6 percent at 5:23 p.m. Paris time. The equivalent contract in Poland slid 0.8 percent, while German power was little changed. European 2014 coal fell as much as 0.5 percent before rebounding.

Prices in markets from Germany, Europe’s biggest consumer, to the Czech Republic have plunged this year as the euro area’s second recession since 2008 depressed industrial demand for energy. Germany’s gross power use last year dropped 1.3 percent to the lowest level since 2003, data from AG Energiebilanzen e.V., an association of energy lobbies and the economic research institutes, show.

“The oversupply in the coal market is driving prices down and power is following suit,” said Thomas Randel, a power trader at EnBW Energie Baden-Wuerttemberg AG. “The market is in such a bearish mood, it’s awful.”

French power for next year slid 25 euro cents to 41.95 euros ($54.70) a megawatt-hour, according to broker prices compiled by Bloomberg. The German electricity contract gained 5 cents to 38.55 euros after earlier trading as low as 38.35 euros. European coal was little changed, trading at $92.25 a metric ton. It earlier fell as much as 0.5 percent to the lowest price since it started trading in January 2010. It has dropped 10 percent this year.

Imports of coal used in German power plants rose to a record last year to about 35 million tons from 33.6 million tons in 2011, data from Verein der Deutschen Kohlenimporteure e.V., the nation’s coal lobby show.

Global Oversupply

While Australia, Colombia and Indonesia are boosting exports of the fuel, a recovery in China’s imports “might not suffice to absorb all the oversupply this year,” Bank of America Corp. said in a March 20 research report.

The U.S. is an exporter of coal and has been burning less of the fuel since the boom of cheap shale gas used for power production, leading to higher exports of the fuel, according to VDKi. U.S. coal imports to Germany rose 20 percent last year to about 10 million tons, according to the coal lobby.

U.S. coal production fell 9.3 percent to 241.7 million tons in the first quarter from a year earlier, data from the U.S. Energy Information Administration show.

European coal probably won’t fall below $90 a ton, Paolo Coghe, an analyst at Societe Generale SA, said today by phone from Paris.

‘Crucial Value’

“This is a crucial value because this level triggers cuts to more expensive supply, for example in Russia, which could not sustain production levels at such low prices,” he said.

“Utilities are starting to burn coal again in the U.S. which may give some support to European coal prices in the form of lower US exports,” Coghe said.

Germany added 290 megawatts of solar panels in March, boosting total installations to 33,165 megawatts, the nation’s grid regulator said April 30. This represents 19 percent of the nation’s total generation capacity and compares with 36,952 megawatts of hard coal and lignite-burning plants.

Germany’s solar growth “should drive wholesale power prices and load factors of conventional plants further down,” Patrick Hummel, Zurich-based analyst at UBS AG, said today in an e-mailed report.

German power for delivery in June dropped as much as 1.7 percent to a record at 32.70 euros, broker data showed.

“If Germany gets a lot of solar power this summer, we could see a very comfortably supplied power system,” Gary Hornby, an analyst at Inenco Group Ltd. in Lytham St. Annes in northern England, said today by e-mail.

Polish 2014 baseload electricity declined to 153.95 zloty a megawatt-hour, its lowest level since start of trading in June last year. The equivalent contract for electricity in Czech Republic lost as much as 2.3 percent to 37.90 euros, lowest since Bloomberg started tracking the contract in February 2012.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE