Europe has a great potential for coal-to-gas switching, as the gas demand is rising this year, Trend reports with reference to the Gas Exporting Countries Forum (GECF).
“The dynamic between carbon prices, coal-to-gas switching price, gas prices and gas demand in the power sector in the EU is quite intricate, and may vary from general expectations. In 2019, there was significant coal-to-gas switching due to strong carbon pricing and, in 2020, the pace of switching slowed as a result of lower demand due to COVID-19 and weaker carbon prices. In 2021 thus far, record-high EU carbon prices have been recorded, and as gas demand continues to recover, there is great potential for coal-to-gas switching. However, the market has also seen a very strong recovery in gas prices, which can potentially limit the magnitude and pace of coal-to-gas switching and thus reduce gas demand,” says Sandy Singh, Research Assistant, Gas Market Analysis Department.
He notes that at the moment, the market awaits additional policy announcements from the European Commission (EC) for its ‘Fit for 55’ package on 14 July 2021, which is expected to widen the scope of emissions to include those from the maritime, transport and building sectors.
“These reforms are expected to tighten the carbon market. The third trading phase was characterised by intense coal-to-gas switching and higher renewable capacity. In this fourth trading phase, one can expect to see strong carbon pricing, however, there is still great uncertainty surrounding the level of carbon prices which will be highly dependent on any new EU ETS policies as well as the ramp up of economic activity and demand in the power sector.”