The recent surge in European gas prices has once again highlighted a fundamental reality of energy economics: a sharp increase in the price of a single fuel can rapidly alter the economic order of power generation—even in a system that has spent years reducing its dependence on coal.
According to Reuters, constraints on LNG flows through the Strait of Hormuz and growing concerns about gas supply security pushed the European gas benchmark above €80 per megawatt-hour (MWh) in September, its highest level in three years.
This increase has raised the profit margins of coal- and lignite-fired power plants above those of gas-fired facilities on average. It marks the first occurrence of this kind since at least 2024 and has temporarily changed the economics of electricity generation across Europe.
When Fuel Prices Change the Dispatch Order
In electricity markets, power plants are not dispatched solely based on technology choices or energy policies. The cost of generating each megawatt-hour of electricity also determines which plants operate first. This economic ranking is commonly known as the merit order.
In simple terms, generating units with lower marginal costs are normally dispatched before more expensive units. When gas prices rise significantly, the generation costs of gas-fired plants increase accordingly. If the increase is large enough that coal-fired generation remains cheaper—even after accounting for carbon costs—coal plants move higher in the dispatch order.
This is precisely what is now occurring in parts of the European power market.
A Projected 27% Increase in Coal Generation
Market estimates suggest that coal-fired power generation in Europe could increase by approximately 27% during the fourth quarter of 2026.
Some analysts also expect coal generation over the next six months to rise by roughly one-quarter, while output from gas-fired power plants may decline by a similar magnitude.
However, it is important to note that these figures are forecasts rather than realized performance. Therefore, they should not be interpreted as evidence that Europe is entering a new era of sustained coal growth. What is currently being observed is the power sector’s economic response to a severe gas-price shock.
Coal Returns—But Not at Its Former Scale
Over the past several decades, the European Union has retired a substantial portion of its coal-fired generation fleet.
Coal’s share of EU electricity generation, which exceeded one-third in 1990, declined to just 9.2% in 2025. Many coal plants have already been shut down, while others are scheduled for retirement, leaving only a limited operational fleet.
This structural decline is significant because even if coal generation becomes economically attractive today, Europe no longer possesses the same level of coal-fired capacity it once did. There is an important distinction between coal becoming more competitive and having the ability to increase coal generation without limitation.
This constraint is particularly visible in Germany, Europe’s largest electricity market. Published estimates suggest that coal-fired generation in the fourth quarter could approach the operational limits of the remaining fleet.
The Difference Between Capacity Mix and True Resilience
Recent developments in Europe provide an important lesson about energy security.
A power system may appear diversified on paper, but that does not necessarily mean it possesses sufficient flexibility during times of crisis. If a large share of dispatchable capacity depends on a single fuel, a price shock or supply disruption affecting that fuel can influence the economics of the entire electricity system.
Solar and wind power can supply a substantial share of electricity demand, but their output depends on weather conditions. During periods of lower renewable generation or higher demand, power systems still require dispatchable resources, energy storage, demand-side management, and strong interconnections between regions.
Energy Security Is Not Just About Installed Capacity
What Europe is experiencing demonstrates that energy security cannot be measured solely by the total number of installed megawatts.
A more important question is how much capacity is actually available during periods of disruption and how effectively the system can switch among different resources.
A resilient power system must be able to respond to fuel-price volatility, supply disruptions, reduced renewable output, and sudden increases in demand.
Conclusion: The Energy Transition Requires Flexibility
The recent rise in European gas prices has altered the short-term economics of electricity generation, making coal-fired power temporarily more competitive than gas-fired generation in certain markets.
This development does not signal a long-term return to coal. Rather, it illustrates the sensitivity of power systems to fuel-price fluctuations and the limitations of available alternatives during periods of stress.
As the share of variable renewable energy increases and energy markets become more interconnected, the value of a diversified generation portfolio, energy storage, dispatchable resources, and intelligent demand management will continue to grow.
Ultimately, energy security is not determined solely by how a system performs under normal conditions. The true measure of resilience is the extent to which it can adapt when conditions become abnormal.