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\u2014even in a system that has spent years reducing its dependence on coal.<\/p>\n
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 \u20ac80 per megawatt-hour (MWh)<\/strong> in September, its highest level in three years.<\/p>\n 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.<\/p>\n 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<\/strong>.<\/p>\n 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\u2014even after accounting for carbon costs\u2014coal plants move higher in the dispatch order.<\/p>\n This is precisely what is now occurring in parts of the European power market.<\/p>\n Market estimates suggest that coal-fired power generation in Europe could increase by approximately 27% during the fourth quarter of 2026<\/strong>.<\/p>\n 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.<\/p>\n 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\u2019s economic response to a severe gas-price shock.<\/p>\n Over the past several decades, the European Union has retired a substantial portion of its coal-fired generation fleet.<\/p>\n Coal\u2019s share of EU electricity generation, which exceeded one-third in 1990, declined to just 9.2% in 2025<\/strong>. Many coal plants have already been shut down, while others are scheduled for retirement, leaving only a limited operational fleet.<\/p>\n 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.<\/p>\n This constraint is particularly visible in Germany, Europe\u2019s largest electricity market. Published estimates suggest that coal-fired generation in the fourth quarter could approach the operational limits of the remaining fleet.<\/p>\n Recent developments in Europe provide an important lesson about energy security.<\/p>\n 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.<\/p>\n 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.<\/p>\n What Europe is experiencing demonstrates that energy security cannot be measured solely by the total number of installed megawatts.<\/p>\n 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.<\/p>\n A resilient power system must be able to respond to fuel-price volatility, supply disruptions, reduced renewable output, and sudden increases in demand.<\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n","protected":false},"excerpt":{"rendered":" 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\u2014even in a system that has spent years reducing its dependence on coal. According to Reuters, constraints on LNG flows […]<\/p>\n","protected":false},"author":1,"featured_media":1065,"menu_order":0,"template":"","meta":{"footnotes":""},"blog_category":[16],"blog_tag":[],"class_list":["post-1064","blog","type-blog","status-publish","has-post-thumbnail","hentry","blog_category-report"],"yoast_head":"\nWhen Fuel Prices Change the Dispatch Order<\/h2>\n
A Projected 27% Increase in Coal Generation<\/h2>\n
Coal Returns\u2014But Not at Its Former Scale<\/h2>\n
The Difference Between Capacity Mix and True Resilience<\/h2>\n
Energy Security Is Not Just About Installed Capacity<\/h2>\n
Conclusion: The Energy Transition Requires Flexibility<\/h2>\n