Negative price spikes at power markets: The role of energy policy

Andreas Gerster

No 636, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: In Germany, substantial drops in wholesale power prices have become a regular phenomenon. While such price drops have far-reaching implications for the functioning of the power market, their underlying determinants remain poorly understood. To fill this gap, we propose a Markov regime-switching model to investigate low-price events at the European Power Exchange. Our analysis focuses on the role of energy policies that promote renewable energies and have led to significant reductions of nuclear capacities after the Fukushima accident. We find that high electricity infeed from renewable sources increases negative price spike probabilities, while the decommissioning of nuclear plants under the Nuclear Moratorium had an opposing effect. Simulations of market outcomes under different energy policies indicate that reaching ambitious renewable energy targets increases the frequency of low-price events and compromises the financial viability of conventional generation units, while a nuclear phase-out or an increase in storage capacities mitigates these effects.

Keywords: renewable energies; nuclear phase-out; day-ahead prices; regimeswitching models; price spikes (search for similar items in EconPapers)
JEL-codes: C32 L94 Q40 Q41 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ene and nep-reg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:636

DOI: 10.4419/86788740

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