Working Paper 09-16 - Drivers of wholesale electricity prices in a small, open economy - Some evidence from the nuclear restart in Belgium

Working Paper 09-16 - Marché de l’électricité: facteurs influençant la formation des prix de gros dans une petite économie ouverte - Enseignements tirés de la relance du nucléaire en Belgique

Danielle Devogelaer and Benoît Laine

Working Papers from Federal Planning Bureau, Belgium

Abstract: In this paper, the impact of a nuclear downtime and subsequent restart on wholesale electricity prices on the Belgian power exchange is investigated by means of a dual methodology. First, publicly available market data is used to construct a stable statistical model that is deployed to examine the effect of nuclear power generation variations on market price outcomes. Quantifying this phenomenon, also called the merit-order effect, with the aid of econometric methods translates into an esti-mated price decrease of around 10 €/MWh for a nuclear capacity hike of 2.5 GW. The importance and impact of the openness of the Belgian market, that is, its strong reliance on cross-border energy exchanges is highlighted. Next to this empirical evidence, the optimisation tool Crystal Super Grid is used to assess the impact of the resumed availability of the nuclear reactors on several indicators characterising the Belgian and European power landscape. A positive effect on overall welfare, consumer surplus and CO2 emissions can be noticed. As regards prices, this analysis confirms the negative merit-order effect which is calculated to equal, on average over a year, 3.8 €/MWh. Nevertheless, temporary hourly excesses of 30 €/MWh can occur. The paper then describes the possible causes of divergence between the two approaches.Our findings have important policy implications as they demonstrate the need to take the downward influence of prolonged nuclear power generation on wholesale prices into consideration when revising the (timetable in the) nuclear phase-out law since it may have a delaying effect on the compulsory energy transition towards a low-carbon economy.

Keywords: Energy modelling; nuclear phase-out; electricity wholesale markets; energy transition (search for similar items in EconPapers)
JEL-codes: C51 L94 Q41 (search for similar items in EconPapers)
Date: 2016-10-12
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