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The Impacts of Variable Renewable Production and Market Coupling on the Convergence of French and German Electricity Prices

Jan Horst Keppler, Sebastien Phan, and Yannick Le Pen

Year: 2016
Volume: Volume 37
Number: Number 3
DOI: 10.5547/01956574.37.3.jkep
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Abstract:
This paper estimates the impact of two separate factors on the spread between French and German electricity prices, the amount of production by variable renewables and "market coupling". As renewable electricity production is concentrated during a limited number of hours with favourable meteorological conditions and interconnection capacity between France and Germany is limited, increases in production of wind and solar PV in Germany lead to increasing price spreads between the two countries. Our estimates based on a sample of 24 hourly French and German day-ahead prices from November 2009 to June 2013 confirm that renewable electricity production in Germany has a strongly positive impact on price divergence. On the other hand, market coupling, the establishment of a combined order book on the basis of information of both markets, which was introduced in November 2010, can be shown to have mitigated the observed price divergence. Both results have policy relevant implications for welfare and the optimal provision of interconnection capacity.



Determining Optimal Interconnection Capacity on the Basis of Hourly Demand And Supply Functions of Electricity

Jan Horst Keppler and William Meunier

Year: 2018
Volume: Volume 39
Number: Number 3
DOI: 10.5547/01956574.39.3.jkep
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Abstract:
Interconnections for cross-border electricity trade improve price convergence and welfare. Increased production from variable renewables however implies higher levels of optimal interconnection capacity than in the past. Rather than using scenario building to determine new optimal levels of interconnection capacity, this paper presents a new methodology for Cost-Benefit Analysis (CBA) based on empirical market data, using the French-German electricity trade as an example. Employing a very fine dataset of hourly supply and demand curves (aggregated auction curves) from the EPEX Spot market, it constructs net export (NEC) and net import demand curves (NIDC) for both countries. This allows assessing hourly welfare impacts for incremental capacity and, summed over the year, the annual welfare benefits for each discrete increase in interconnection capacity. Confronting benefits with the annualised costs of increasing interconnection capacity determines the socially optimal increase in interconnection capacity between France and Germany on the basis of empirical market micro-data.





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