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

Stefan Thoenes

Year: 2014
Volume: Volume 35
Number: Number 4
DOI: 10.5547/01956574.35.4.3
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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.



Renewable Electricity and Backup Capacities: An (Un-) Resolvable Problem?

Aaron Praktiknjo and Georg Erdmann

Year: 2016
Volume: Volume 37
Number: Bollino-Madlener Special Issue
DOI: 10.5547/01956574.37.SI2.apra
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Abstract:
Public support for renewables has led to an unexpected investment momentum in Germany. A consequence is a reduction in wholesale electricity prices, the so-called merit order effect of renewables. We estimate this reduction using an econometric approach and provide a quantitative overview of the financial situation of conventional generators. Our results indicate that investments in new conventional capacities are economically unviable. With the current market design, this situation is going to impact supply security, at least in the long run. A popular approach to address this issue is the introduction of additional public support for conventional power plants. However, we believe that subsidizing renewable and conventional capacities contradicts the idea of a liberal market. We present two alternatives: State control of investments in renewables through auctions (as proposed by the European Commission), and a premium paid to representatives of the demand side (such as retailers) in dependence of their shares of renewables.



Competition in Electricity Markets with Renewable Energy Sources

Daron Acemoglu, Ali Kakhbod, and Asuman Ozdaglar

Year: 2017
Volume: Volume 38
Number: KAPSARC Special Issue
DOI: 10.5547/01956574.38.SI1.dace
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Abstract:
This paper studies the effects of the diversification of energy portfolios on the merit order effect in an oligopolistic energy market. The merit order effect describes the negative impact of renewable energy, typically supplied at the low marginal cost, to the electricity market. We show when thermal generators have a diverse energy portfolio, meaning that they also control some or all of the renewable supplies, they offset the price declines due to the merit order effect because they strategically reduce their conventional energy supplies when renewable supply is high. In particular, when all renewable supply generates profits for only thermal power generators this offset is complete - meaning that the merit order effect is totally neutralized. As a consequence, diversified energy portfolios may be welfare reducing. These results are robust to the presence of forward contracts and incomplete information (with or without correlated types). We further use our full model with incomplete information to study the volatility of energy prices in the presence of intermittent and uncertain renewable supplies.



Cross-subsidies Tied to the Introduction of Intermittent Renewable Electricity. An Analysis Based on a Model of the French Day-Ahead Market

Jacques Percebois and Stanislas Pommeret

Year: 2018
Volume: Volume 39
Number: Number 3
DOI: 10.5547/01956574.39.3.jper
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Abstract:
The introduction of renewable energy paid off-market disrupts the demand-price relationship in wholesale electricity markets. Drawing on 2015 hourly data from France's electricity transmission network operator (RTE) and the French day-ahead spot market, this paper attempts to quantify the disturbance observed and the transfers of revenues among consumers, producers and providers. This study calculates, through a modeling of the day-ahead market, the impact on conventional electricity producers in France in terms of the loss of economic value owing to the introduction of renewable energies. In the same time consumers benefit from lower electricity prices but have to pay for feed-in tariffs. Renewable electricity producers and electricity providers are also the winners. An estimation of the cross-subsidies induced by the injection of renewable electricity is given.



Renewable Generation Capacity and Wholesale Electricity Price Variance

Erik Paul Johnson and Matthew E. Oliver

Year: 2019
Volume: Volume 40
Number: Number 5
DOI: 10.5547/01956574.40.5.ejoh
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Abstract:
The share of electric power generated from renewable energy sources such as wind and solar must increase dramatically in the coming decades if greenhouse gas emissions are to be reduced to sustainable levels. An under-researched implication of such a transition in competitive wholesale electricity markets is that greater wind and solar generation capacity directly affects wholesale price variability. In theory, two counter-vailing forces should be at work. First, greater wind and solar generation capacity should reduce short-run variance in the wholesale electricity price due to a stochastic merit-order effect. However, increasing the generation capacity of these technologies may increase price variance due to an intermittency effect. Using an instrumental variables identification strategy to control for endogeneity, we find evidence that greater combined wind and solar generation capacity is associated with an increase in the quarterly variance of wholesale electricity prices. That is, the intermittency effect dominates the stochastic merit-order effect.



Market Power and Renewables: The Effects of Ownership Transfers

Olivier Bahn, Mario Samano, and Paul Sarkis

Year: 2021
Volume: Volume 42
Number: Number 4
DOI: 10.5547/01956574.42.4.obah
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Abstract:
Adding renewable energy sources (RES) to an electricity market has an ambiguous effect on wholesale prices. The merit order effect (MoE) has a downward pressure on prices while, with market power, higher inframarginal rents will tend to increase prices. We quantify the interaction of the two effects in the Ontario electricity market. We identify the market power effect by simulating transfers of RES capacity from the fringe to larger firms: these transfers increase prices by up to 24%. We then add RES capacity and allocate it to players with varying levels of market power. Following a net expansion of RES capacity of 5% relative to total capacity, prices decrease by 30% when new capacity is assigned to the fringe, but only by 7% when assigned to the largest firm. Our findings show that the MoE is largely mitigated by market power, hence the importance of the market structure in the design of uniform incentives for RES adoption.



The Impact of Renewable Energy Generation on the Spot Market Price in Germany: Ex-Post Analysis using Boosting Method

Alexander Ryota Keeley, Ken’ichi Matsumoto, Kenta Tanaka, Yogi Sugiawan, and Shunsuke Managi

Year: 2020
Volume: Volume 41
Number: Special Issue
DOI: 10.5547/01956574.42.S12.akee
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Abstract:
This study combines regression analysis with machine learning analysis to study the merit order effect of renewable energy focusing on German market, the largest market in Europe with high renewable energy penetration. The results show that electricity from wind and solar sources reduced the spot market price by 9.64 €/MWh on average during the period from 2010 to 2017. Wind had a relatively stable impact across the day, ranging from 5.88 €/MWh to 8.04 €/MWh, while the solar energy impact varied greatly across different hours, ranging from 0.24 €/MWh to 11.78 €/MWh and having a stronger impact than wind during peak hours. The results also show characteristics of the interactions between renewable energy and spot market prices, including the slightly diminishing merit order effect of renewable energy at high generation volumes. Finally, a scenario-based analysis illustrates how different proportions of wind and solar energies affect the spot market price.





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