Europe Power Generators Shift Back to Coal on Gas Prices

Analysts now expect coal-fired electricity output in Europe to rise by about a quarter over the next six months, offsetting a similar drop in gas generation. ICIS said the economics have flipped enough that the clean dark spread — the gross margin for a coal plant — has jumped sharply since the Iran conflict escalated, while the equivalent clean spark spread for gas has slumped.

For investors, the move changes the earnings setup across European utilities, fuel suppliers and carbon markets. Plants that still have coal capacity available stand to benefit from improved dispatch economics, while gas-heavy generators face margin pressure and lower running rates. The dynamic also underscores how limited Europe’s remaining flexibility is after years of coal plant closures: ICIS analyst Florian Boehnke said even gas at 100 euros per MWh would not allow the sector to respond much more.

Germany is at the center of the shift because it is Europe’s biggest power market and the region’s largest gas consumer. Veyt said coal generation there is expected to run close to its limit in the fourth quarter, matching the highest quarterly output ever seen from the remaining fleet.

The rebound is unlikely to be a short-lived blip if forward gas prices are right. Veyt analyst Marta Wroniszewska said coal is projected to stay cheaper than gas for power generation through next year and possibly until March 2028, suggesting traders expect the supply squeeze to linger.

Coal’s return also highlights the strain on Europe’s broader energy transition. Renewables still displace fossil fuels when weather conditions cooperate, but utilities continue to rely on coal and gas to balance the grid when wind and solar output falls, especially in winter. With much of the coal fleet already shut, the continent has less room than before to cushion another gas spike.

The immediate catalyst remains the Middle East conflict and the risk it poses to LNG flows. If gas prices stay elevated, Europe’s power market is likely to stay locked in a more carbon-intensive mix, even if only temporarily.