In 2017, the French government announced that it would shut down the country’s last coal-fired plants by 2022. Article 3 of the energy-climate law introduced a mechanism that caps emissions and thus the amount of time coal-fired plants can operate in mainland France after 1st January 2022. This objective was in line with the targets set out in the Multiannual Energy Programme unveiled early in 2019.
The four coal-fired plants in question, the ones still in service in France, are the Cordemais, Le Havre, Saint-Avold and Gardanne facilities.
They represent installed capacity (five generating units) of 3 GW, or about 2.2 % of total installed capacity in France.
Producers of electricity seek to cover their fixed and variable costs. Consequently, a coal plant is typically not run unless it can at least cover its variable costs, which depend mainly on how much it pays for fuel and emissions allowances. Under current conditions, the variable costs of a coal power producer in France seem high based on the European economic dispatch order (base-load, then semi-base-load then peak). Coal plants are semi-base load resources designed to operate for a fairly long period in order to cover their relatively high fixed costs. As the carbon price increases, they gradually become the most expensive semi-base load plants to operate within the merit order. The shorter the length of time they operate, the more difficult it becomes to cover fixed costs.
Various technical and economic factors determine when coal plants are fired up: the coal price, the price of carbon emissions credits, and the euro/dollar exchange rate.
- Price of emissions allowances up sharply
Generators that produce CO2, are required to purchase permits to offset those emissions. Because coal gives off large quantities of CO2, the price of permits is a key determinant in the operation of a coal plant. In September 2020, the price of an emissions allowance reached a record high of €30.4 per tonne. If a generator fails to cover its production, each tonne of CO2 emitted but not covered by equivalent allowances incurs a penalty of at least €100 per tonne, in addition to the coverage requirement. Permit prices began to decline sharply starting in mid-March, due to the health crisis, but then climbed back above the 2019 level, driving up the variables costs of coal plants
The CO2 emission factor is almost twice as high for coal as for gas plants (0.986 t/MWh for coal units vs. between 0.352 t/MWh and 0.583 t/MWh for various gas-fired generation technologies, according to ADEMEFrench Agency for the Ecological Transition, formerly the French Environment and Energy Management Agency data). Though the coal price did decline in the first half of 2020, the gas price fell even more sharply, making gas more competitive than coal for an equivalent level of service in terms of generating flexibility.
The €/$ exchange rate is another economic factor that determines when coal plants run. Coal is purchased in dollars but electricity is sold in euros. The ratio generally trended higher starting in May 2020, making coal more competitive relative to other generation resources.
Marginal costDifference between consumption recorded in 2020 and the average consumption recorded in 2014-2019. Only consumption on business days is taken into account, and it is adjusted for weather of coal plants
In theory, prices on the day-ahead market are set, for a given time of day, based on the variable cost of the marginal technology (i.e. the one supplying the last MW).
When the average marginal costDifference between consumption recorded in 2020 and the average consumption recorded in 2014-2019. Only consumption on business days is taken into account, and it is adjusted for weather is below or close to the day-ahead price, it corresponds to when coal power plants are operating. This is when producers can generate a profit on their electricity sales.
The chart below shows the average marginal costDifference between consumption recorded in 2020 and the average consumption recorded in 2014-2019. Only consumption on business days is taken into account, and it is adjusted for weather of coal power plants in France.