Lignite power revenues boosted by cheap carbon prices
* Lignite power margins are three times as high as those from hard coal
* Most European gas power plants are unprofitable
* Coal & gas spreads: link.reuters.com/cew32v
By Andrew Allan and Henning Gloystein
LONDON, Aug 12 (Reuters) - European electricity revenues generated from lignite are now three times as high as from hard coal, boosted by a collapse in the price of carbon permits, undermining Europe's ambition to cut greenhouse gas emissions.
The money will be welcome to German utilities, which are seeing their revenues squeezed by the government's 2011 decision to speed up its nuclear power exit, and by natural gas prices that are so high that electricity generated from the fuel is unprofitable.
While they undermine the European Union's target to decarbonise its energy sector by 2050, these price developments could be welcome news to the German government which is trying to find ways to reduce the spiralling costs of its renewable energy subsidies.
Germany is the world's biggest miner of lignite, and the country's number two utility RWE is its biggest producer, followed by Sweden's state-controlled utility Vattenfall and Germany's top utility E.ON.
Poland, which has big lignite reserves, is also leaning increasingly towards the fuel.
The European Union requires every utility to buy permits for each tonne of CO2 it pumps into the atmosphere and lignite, or brown coal, is the most carbon-intensive form of the main fossil fuels (lignite, hard coal and gas) used to produce electricity.
But the price for such permits has dropped from a peak of over 30 euros ($40.05) per tonne in 2006 to under 5 euros.
Though dirtier than hard coal or natural gas, lignite power generation is attractive because German or Polish utilities can use ample domestic reserves instead of having to pay for imports as they mostly do for hard coal or gas.
Additionally, the recent collapse in carbon prices, coupled with low coal and relatively high oil and gas prices, means that revenues from burning lignite are now around three times higher than those of burning hard coal.
Baseload (24 hours) lignite generation revenue margins for electricity delivered in 2014 are currently around 20-27 euros per megawatt-hour (MWh), depending on individual mining costs, compared with under 8 euros a MWh for power generated from imported hard coal, according to utility sources.
Most gas plants, which emit half as much CO2 as coal, run at a loss across Europe, Reuters figures show, and emissions certificates would have to cost around 45 euros per tonne in order to make gas more profitable than coal for electricity generation.
"Lignite power plants...are now by far the most profitable form of thermal generation in Germany. At the same time, lignite is the politically least-desired fuel given its high carbon emissions," Macquarie said in a report dated July 31.
The bank's analysts said they saw the introduction of a lignite tax across Germany as a possibility, despite the levy not being discussed ahead of next month's federal election.
Such a move could prove a headache for Europe's energy industry, most of which has campaigned for uniform EU energy and climate policy.
Another measure to make gas more attractive for electricity generation is an EU Commission proposal to support the price of carbon temporarily to make new and existing lignite and coal-fired plants less profitable.
However, the proposal has stalled ahead of the German election where energy policy is expected to play a key role.
Germany accounts for about 17 percent of global lignite production, but it imports 80 percent of its hard coal, according to German government data. ($1 = 0.7490 euros) (Additional reporting by John McGarrity; editing by Keiron Henderson)