How renewable production depresses electricity prices: Evidence from the German market
Cyril Martin de Lagarde and
Energy Policy, 2018, vol. 117, issue C, 263-277
The urgency of climate change has led several countries to develop renewable energy in order to reduce CO2 emissions, through the means of various subsidies. In the electricity sector, one drawback of such policies is the negative impact on electricity prices, known as the merit-order effect. This paper aims at assessing how intermittent renewable production depresses electricity prices in Germany, which has experienced a significant increase of its renewable capacity over the last two decades. To do so, we use a two-regime Markov switching model, that enables to disentangle the impact of wind and solar generation, depending on the price being high or low. We find as expected that renewable production induces a negative marginal effect, which is stronger in regimes of relatively high prices. In addition, we show that both wind and solar productions have a significant impact on the distribution of prices, and in particular on the frequency and expected duration of each regime. This has implications in terms of market design, security of supply, and support mechanisms for renewables.
Keywords: Renewable energy; Intermittency; Electricity markets; Merit-order effect; Feed-in tariffs; Markov switching models (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:117:y:2018:i:c:p:263-277
Access Statistics for this article
Energy Policy is currently edited by N. France
More articles in Energy Policy from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().