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Despite the fact that the EU will stop giving out free carbon permits soon, coal power is set to boom as other factors make it the most profitable source of energy in Europe.
European utilities such as EON AG and RWE AG are set to open six times as many coal-burning power plants than gas-burning plants by 2015. Goldman Sachs Group suggests that this is because profits from collar-fired power stations are set to more than double by that date.
Laurent Segalen, a director at ECMF (the European Carbon Macro Fund), said that “the economics for coal are near the best we’ve seen in five years.”
The reason for this boost in profitability? The massive fall in prices of UN credits, known as Certified Emission Reductions (CERs). Over the last year the price of UN credits for 2013 has fallen by 80% making them, according to Mr. Segalen, “an amazing bargain.”
Bloomberg calculate that coal plants will become 58% more profitable by using the UN CERs instead of the EU carbon permits. Taking Germany as an example, their profit margin would be €15.69 with CERs, or €9.96 with an EU permit. Natural Gas power plants cannot make a profit under either scheme.
Patrick Hummel, a USB analyst in Zurich, believes that utilities will install up to 10,600 megawatts of new coal plants in the next four years, spread over several central European countries; compared to just 1,600 megawatts of natural gas power plants.
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com