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Understanding the Determinants of Electricity Prices and the Impact of the German Nuclear Moratorium in 2011

Abstract:
This paper shows how the effect of fuel prices varies with the level of electricity demand. It analyzes the relationship between daily prices of electricity, natural gas and carbon emission allowances with a semiparametric varying smooth coefficient cointegration model. Different electricity generation technologies have distinct fuel price dependencies, which allows estimating the structure of the power plant portfolio by exploiting market prices. The semiparametric model indicates a technology switch from coal to gas at roughly 85% of maximum demand. This model is used to analyze the market impact of the nuclear moratorium by the German Government in March 2011. Futures prices of electricity, natural gas and emission allowances are used to show that the market efficiently accounts for the suspended capacity and correctly expects that several nuclear plants will not be switched on after the moratorium.

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Energy Specializations: Nuclear Power – Markets and Prices; Nuclear Power – Policy and Regulation; Electricity – Markets and Prices ; Electricity – Generation Technologies; Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
D42 - Market Structure, Pricing, and Design: Monopoly
Q2 -
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination

Keywords: Electricity market, Merit order, Cointegration, Varying coefficient, Nuclear moratorium, Event study

DOI: 10.5547/01956574.35.4.3

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Published in Volume 35, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.