Econonomics of Energy and Environmental Policy

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Eyes on the Price: Which Power Generation Technologies Set the Market Price?

Upon discussion of price setting on electricity wholesale markets, many refer to the so-called merit order model. Conventional belief holds that during most hours of the year, coal- or natural gas-fired power plants set the price on European markets. In this context, this paper analyses price setting on European power markets. We use a fundamental electricity market model of interconnected bidding zones to determine hourly price-setting technologies for 2020. We find a price-setting pattern that is more complex and nuanced than the conventional belief suggests: across all researched countries, coal- and natural gas-fired power plants set the price for only 40 per cent of all hours. On some markets, the price setting is characterised by a high level of interconnectivity—as illustrated by the example of the Netherlands. During some 75 per cent of hours, foreign power plants set the price on the Dutch market.
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Keywords: Price Setting, Electricity Markets, Merit Order, Generation Technologies

DOI: 10.5547/2160-5890.10.1.eblu

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Published in Volume 10, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


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