A note on hydropower as a marginal price setter for Spain's electricity market in 2021–2022

Juan Ignacio Peña

Utilities Policy, 2024, vol. 87, issue C

Abstract: From January 2021 to March 2022, wholesale Spanish spot electricity prices reached a record high of €700/MWh. Surprisingly, hydropower set the marginal market price for 52% of the hours in 2021 and 43% in the first quarter of 2022. Combined-cycle gas-fired units, which typically determine the marginal price, were marginal in only 16% and 21% of the hours in 2021 and 2022, respectively. Hydropower set prices between 3% and 12% higher than an estimate of their opportunity cost, and they were responsible for charging 69% of the prices above €500/MWh. The empirical evidence suggests that 2021 was an unusual year compared to 2018 and 2019 because the role played by hydropower as a marginal price setter was relatively more prominent.

Keywords: Marginal pricing; Hydropower; Renewable energy; Market remuneration; Opportunity cost (search for similar items in EconPapers)
JEL-codes: C51 G13 L94 Q40 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juipol:v:87:y:2024:i:c:s0957178724000195

DOI: 10.1016/j.jup.2024.101726

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