Rising European natural gas prices are improving the short-term competitive position of coal and lignite generation across Southeast Europe, even as the region continues to expand renewable capacity and prepare for tighter carbon constraints.
Gas-fired generation across the monitored Southeast European markets fell 30.3% to 2.72 TWh in Week 34 compared with Week 30, while coal and lignite generation increased by 6.76%. Overall thermal generation nevertheless declined by 13.1% to 6.34 TWh, indicating that the shift was not a broad return to fossil-fuel generation, but rather a change in the composition of the thermal fleet.
European gas prices provide an important explanation for the changing generation mix. TTF gas averaged around €63.99/MWh between August 17 and 21, reaching €65.87/MWh toward the end of that period. Since then, European benchmark prices have tightened further, moving above €75/MWh by early September amid renewed concerns over winter supply availability.
The increase in gas costs has a direct impact on electricity-market merit orders. Combined-cycle gas turbines can be among the most efficient thermal generators in Southeast Europe, but their marginal generation costs rise rapidly when fuel prices increase. By contrast, coal and lignite plants with access to relatively secure domestic fuel supplies can regain dispatch hours despite facing higher carbon and environmental costs.
This dynamic is particularly relevant in Serbia, Bosnia and Herzegovina, Bulgaria, North Macedonia and Romania, as well as parts of the wider Central and Eastern European electricity market where coal and lignite capacity remains available.
The development should not be interpreted as a reversal of the region’s longer-term transition away from coal. Rising European carbon prices, ageing generating units, increasingly stringent environmental requirements and national decarbonisation commitments continue to undermine the long-term investment case for coal-fired generation.
Instead, the current market highlights the distinction between the short-term merit order and the long-term investment order. A lignite plant that would struggle to attract capital for another three decades of operation can nevertheless remain economically valuable during periods when gas prices surge, wind output weakens and evening electricity prices climb above €200/MWh.
That optionality becomes increasingly important as renewable penetration rises. Solar generation can cover a growing share of daytime electricity consumption, but the system still requires dispatchable capacity once the sun sets. When batteries, hydropower, demand response and cross-border imports cannot fully cover the evening shortfall, thermal generation becomes the residual source of supply.
The cost of that residual megawatt-hour can have a disproportionate influence on wholesale electricity prices. This means gas prices continue to shape Southeast European power markets even when gas-fired plants themselves produce fewer megawatt-hours.
When gas becomes sufficiently expensive, two effects can occur simultaneously. Expensive gas-fired generation can set the marginal electricity price during periods of tight supply, while the same high fuel costs can push coal and lignite ahead of gas in the dispatch order, increasing utilisation of existing coal capacity.
Southeast Europe is therefore entering an increasingly complex transition phase. Renewable generation is expanding rapidly enough to reduce average fossil-fuel utilisation, but not yet at a scale — or with sufficient storage and flexibility — to eliminate the need for thermal capacity during periods of scarcity.
Higher gas prices make that transition more expensive while simultaneously increasing the near-term economic value of existing coal and lignite assets. Their role is becoming less about providing continuous baseload generation and more about maintaining dispatchable capacity when renewable output falls and alternative sources become unavailable or too costly.
The emerging cleaner electricity system remains structurally dependent on flexibility, storage and dispatchable capacity. For now, when gas becomes sufficiently expensive, that flexibility can still come from one of the region’s oldest generation technologies: coal and lignite.
