By Gavin Maguire
LITTLETON, Colorado (Reuters) – Many of northern Europe’s largest economies have sharply boosted gas-fired power generation so far in 2025, helping to lift regional gas prices to their highest since early 2023.
Gas-fired output during January in Germany, the United Kingdom, the Netherlands and Poland all jumped by well over 10% from January 2024’s levels to their highest for that month since at least 2022, according to data from LSEG.
But the pace of gas consumption going forward may start to slow as regional gas prices have now climbed above the price of coal-fired generation, which may spur some power firms to cut gas output and raise coal-fired generation instead.
This switch-out of gas for coal is especially likely in Germany and Poland where coal-fired power holds a larger share than natural gas of national generation systems.
Reduced gas consumption by those countries could help cap the recent rally in European gas prices, which are up by roughly 60% from where they were trading a year ago.
However, reduced gas use and more coal-fired generation will have significant emissions repercussions, as nearly twice as much carbon dioxide is discharged per unit of generated power from coal as from gas.
GAS BOOM
Gas-fired power output scaled historic highs in Germany and the United Kingdom in January, registering the highest monthly tallies in both countries since before Russia’s invasion of Ukraine in early 2022 snarled regional gas markets.
The January 2025 gas-fired total was also the second-highest monthly tally on record since 2022 in both the Netherlands and Poland, underscoring the broad sweep of gas use seen across Europe in recent months.
Europe’s main gas pricing hub – the TTF facility in the Netherlands – has reflected the robust consumption pace, with prices in January averaging 48.36 euros per megawatt hour, according to LSEG.
That average is 40% above the TTF average for 2024 and 60% higher than where TTF averaged in January 2024, and is the highest price the region has registered since February 2023.
SWITCHING OUT
The steep ascent in TTF gas values has squeezed margins for power producers, who are under pressure to limit price increases for consumers.
Consumer energy costs across Europe climbed more steeply than in the United States and Asia in 2022 and 2023, and as a result European power suppliers are under intense governmental and societal pressure to avert any further cost increases.
One means of doing so is to switch out pricey gas for cheaper generation sources wherever possible.
In Germany and Poland, coal has become the cheaper power generation source compared to natural gas following the steep rise in gas costs over the past year.
Indeed, gas prices have been consistently above the so-called coal-switching price since August 2024.
The coal-switching price marks the point at which a power supplier can more economically generate power from coal than from gas, assuming that both fuel sources are available.
From August through the end of 2024, TTF gas prices averaged around 6.20 euros per megawatt hour (MWh), or 18%, above the coal-switching price, according to LSEG data.
So far in 2025, that differential has widened to nearly 13 euros/MWh – or 36% – above the coal-switching price.
For managers of complex power networks that feature coal and gas power plants, both the spot and forward prices of locally available natural gas and thermal coal factor into the coal-switching equation.
And the current forward curve for TTF natural gas indicates that gas costs will remain above the coal-switching price until well into 2026, by which point gas costs are projected to head lower again.
LSEG forward curve data indicates that TTF prices will average around 14.70 euros/MWh above the coal switching price for 2025, although the forward curves for both gas and coal will remain dynamic.
For power producers in continental Europe, this price outlook suggests that firms which can boost output from coal and cut gas use may be able to reduce operating costs, and potentially limit further rises in consumer energy bills.
However, any sharp climbs in coal-fired output will undermine efforts to reduce regional emissions, and may generate criticism from regional emissions watchdogs.
Power firms in the United Kingdom have no option to revert to coal-fired output following the closure of Britain’s last coal plant in 2024, but may see a sustained rise in wind power generation over the coming months that may limit the amount of gas-fired generation required.
In all, power firms across Europe look set to try to boost output from non-gas sources going forward following the steep climb in local gas costs, although gas-fired plants will remain a key part of the overall generation mix.
The opinions expressed here are those of the author, a market analyst for Reuters.
(Reporting By Gavin Maguire; Editing by Christian Schmollinger)
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