Coal could join gas in making losses in Germany's struggling power market, as a continuing renewable energy boom and slumping power demand force utilities to rethink their strategy.
Wind and solar power have seen massive capacity growth driven by priority grid access plus 20-year government-guaranteed subsidies.
Soaring renewables capacity has collided with falling power demand to crush fossil fuel margins.
That will lead to faster closure of old conventional capacity, especially gas and hard coal, and a halt to new fossil fuel investment with risks for dispatchable back-up when renewables are unavailable.
All is certainly not lost for fossil fuel generation, especially given its trump card of flexibility, but utilities must re-consider a strategy which until recently largely comprised optimising fossil fuel assets in traded markets.
LOW SPARK SPREADS
The clean gas spread illustrates how optimising conventional assets does not work on its own.
The spread measures the short-run profit margin from operating gas plants after allowing for the cost of fuel and carbon emissions permits.
The clean gas spread is presently deep in the red, given low power demand and flat or rising gas prices, at around minus 15 euros per megawatt hour, as calculated using wholesale market prices for year-ahead British gas and German power.
Utilities record less catastrophic levels, presumably because they can secure gas at more favourable prices.
Germany's biggest utility E.ON distinguishes between a "classic" and "dispatched" spark spread.
The higher, dispatched spark spread reflects the fact that the company does not run its combined cycle gas turbine (CCGT) plants when spreads are negative.
The lower, classic spread was also consistently positive throughout 2012, the company reports, although both measures fell sharply through the year.
E.ON assumed positive clean spark spreads of 2 euros per megawatt hour through 2013, in its "Capital Market Day" presentation two weeks ago.
Meanwhile RWE reported year-ahead, clean spark spreads in 2012 of an average minus 1.64 euros in Germany and plus 3.44 euros in Britain, in its markets presentation last month, "Value in uncertain times".
Coal's clean dark spread has fared better because of falling coal prices, after lower demand in the United States due to shale gas competition and restrained growth elsewhere including China as a result of the weak global economy.
RWE last month reported average year-ahead clean dark spreads last year of 9.99 euros per megawatt hour in Germany and 22.14 euros in Britain.
However, a sensitivity analysis showed that theoretical spreads could turn negative under entirely plausible scenarios for various wholesale, year-ahead power, coal and carbon prices, Reuters reported on Wednesday.
Utilities remain relatively upbeat, for now.
E.ON assumed a positive clean dark spread of 10 euros per megawatt hour through 2013 as of two weeks ago.
Utilities have various strategies for coping with low or negative spreads in conventional power generation, from optimising of existing fossil fuel assets to decommissioning, divestment and re-investment in renewables.
Regarding existing gas assets, one example of an adaptation strategy is to switch CCGT units into open cycle gas turbine (OCGT) mode, as E.ON reports it has done to reduce fixed costs.
OCGT units can run at lower loads, rather than shut down for example when wind generation ramps up, and provide potentially lucrative grid balancing services.
CCGT plants recycle waste heat from a gas turbine in a heat recovery steam generator, producing steam to drive the turbine, increasing efficiency of generation.
The steam cycle lowers the operational flexibility of a CCGT unit, however, as described by researchers at University College Dublin in a 2010 paper, "Multi-mode Operation of Combined Cycle Gas Turbines with Increasing Wind Penetration".
"The steam cycle contains many thick-walled components, necessary to withstand extreme temperatures and pressures. To avoid differential thermal expansion across these components and the subsequent risk of cracking, these components must be heated slowly resulting in slower start-up times and ramp rates for the unit overall."
CCGT plants also have large minimum loads.
The start-up time of OCGT plants is 10-20 minutes, compared with 30-60 minutes for CCGT, one to 10 hours for coal and two hours to two days for nuclear, according to the Nuclear Energy Agency. (Chart 5)
Comparing start-up and ramp-up time by dispatchable technology
CCGT plants which incorporate a "bypass stack" can by-pass the steam cycle and switch to an OCGT mode.
Another strategy if you cannot beat renewables is to invest in them.
E.ON said two weeks ago it would redirect its entire discretionary capital expenditure, excluding maintenance of existing assets, into renewables, distributed energy and non-European markets as of 2015.
Similarly, RWE's growth areas as outlined last month were: central-eastern and south-eastern Europe; upstream gas and oil; and renewables, the biggest at 60 percent of the ear-marked 6 billion euros investment from 2012-2014.
And at Vattenfall, wind power would account for the largest share of growth investments from 2013-2017, at 56 percent of the total, the Swedish, state-owned energy group reported in its year-end report for 2012.
Wind accounted for just 2.4 percent of its electricity generation in the fourth quarter last year.
While investing in renewables, conventional utilities are not so slow to point out the huge value of the flexibility of fossil fuel assets.
On a cold, still day last February, when wind and solar power were unavailable and power demand high, Germany had less than 2 GW spare capacity, out of installed capacity of 150 GW, according to RWE, whose generation portfolio is dominated by coal and gas.
For sure, governments will have to tilt the balance back towards conventional power to ensure backup remains available.