Global Gas Crunch Makes Europe’s Remaining Coal Plants Profitable

By Michael Kern of OilPrice.com

The global LNG supply crunch has made Europe’s last-standing coal-fired power plants profitable this year as gas supply costs soar while the need for conventional generation to stabilize grids remains.

In Germany and Poland, which host most of the remaining operational or back-up-ready coal power capacity in Europe, coal-fired generation is profitable again as winter approaches, LNG supply is barely moving out of the Strait of Hormuz, and gas prices are at their highest level since the 2022-2023 crisis.

European countries, including Germany, have closed coal capacities in recent years due to climate targets. But the remaining coal-fired power plants have now become indispensable in stabilizing the grids as gas-fired generation slumps amid demand destruction and gas conservation.

One measure of profitability for generating electricity from lignite in Germany has jumped to as much as $72 (64 euros) per megawatt-hour (MWh) this month, compared to zero at this time last year, per estimates by Energy Aspects cited by Bloomberg.

“The spreads are expected to stay high through March,” Energy Aspects analyst Sabrina Kernbichler said.

Coal demand in Europe remains in a structural decline, but the drop is set to slow this year, the International Energy Agency (IEA) said in its Coal Mid-Year Update 2026 last month.

Total annual coal demand in Europe is now expected to reach 276 million tons in 2026, down from 292 million tons last year, but higher than previously expected, according to the agency.

“Higher gas prices have reduced the expected decline in countries, such as Germany and Poland, where gas generation and spare coal capacity remains available,” the IEA noted.

Weather-related events, such as cold spells going into the winter, could also temporarily increase coal use in Europe more than what was expected before the war in Iran, which sent shockwaves through the oil and gas markets globally, the Paris-based agency said.