TY - JOUR A1 - Ruhnau, Oliver A1 - Bucksteeg, Michael A1 - Ritter, David A1 - Schmitz, Richard A1 - Böttger, Diana A1 - Koch, Matthias A1 - Pöstges, Arne A1 - Wiedmann, Michael A1 - Hirth, Lion T1 - Why electricity market models yield different results: Carbon pricing in a model-comparison experiment N2 - The European electricity industry, the dominant sector of the world’s largest cap-and-trade scheme, is one of the most-studied examples of carbon pricing. In particular, numerical models are often used to study the uncertain future development of carbon prices and emissions. While parameter uncertainty is often addressed through sensitivity analyses, the potential uncertainty of the models themselves remains unclear from existing single-model studies. Here, we investigate such model-related uncertainty by running a structured model comparison experiment, in which we exposed five numerical power sector models to aligned input parameters—finding stark model differences. At a carbon price of 27 EUR/t in 2030, the models estimate that European power sector emissions will decrease by 36–57% when compared to 2016. Most of this variation can be explained by the extent to which models consider the market-driven decommissioning of coal- and lignite-fired power plants. Higher carbon prices of 57 and 87 EUR/t yield a stronger decrease in carbon emissions, by 45–75% and 52–80%, respectively. The lower end of these ranges can be attributed to the short-term fuel switch captured by dispatch-only models. The higher reductions correspond to models that additionally consider market-based investment in renewables. By further studying cross-model variation in the remaining emissions at high carbon prices, we identify the representation of combined heat and power as another crucial driver of differences across model results. KW - Carbon pricing, EU Emission Trading System (EU ETS), electricity decarbonization, power sector, renewable energy, fuel switch, combined heat and power, electricity market modeling, model comparison, model-related uncertainty KW - Centre for Sustainability Y1 - 2022 U6 - https://doi.org/10.1016/j.rser.2021.111701 N1 - Preprint version available here: https://www.econstor.eu/handle/10419/234468 ER - TY - JOUR A1 - Cloete, Schalk A1 - Ruhnau, Oliver A1 - Cloete, Jan Hendrik A1 - Hirth, Lion T1 - Blue hydrogen and industrial base products: The future of fossil fuel exporters in a net-zero world N2 - Is there a place for today’s fossil fuel exporters in a low-carbon future? This study explores trade channels between energy exporters and importers using a novel electricity-hydrogen-steel energy systems model calibrated to Norway, a major natural gas producer, and Germany, a major energy consumer. Under tight emission constraints, Norway can supply Germany with electricity, (blue) hydrogen, or natural gas with re-import of captured CO2. Alternatively, it can use hydrogen to produce steel through direct reduction and supply it to the world market, an export route not available to other energy carriers due to high transport costs. Although results show that natural gas imports with CO2 capture in Germany is the least-cost solution, avoiding local CO2 handling via imports of blue hydrogen (direct or embodied in steel) involves only moderately higher costs. A robust hydrogen demand would allow Norway to profitably export all its natural gas production as blue hydrogen. However, diversification into local steel production, as one example of easy-to-export industrial base products, offers an effective hedge against the possibility of lower European blue hydrogen demand. Thus, it is recommended that hydrocarbon exporters like Norway consider a strategic energy export transition to a diversified mix of blue hydrogen and climate-neutral industrial base products. KW - Hydrogen economy, Energy-intensive industry, Decarbonization, CO2 capture and storage, Variable renewable energy KW - Centre for Sustainability Y1 - 2022 U6 - https://doi.org/10.1016/j.jclepro.2022.132347 PB - Journal of Cleaner Production Vo. 363 ER - TY - JOUR A1 - Eicke, Anselm A1 - Ruhnau, Oliver A1 - Hirth, Lion T1 - Electricity balancing as a market equilibrium: An instrument-based estimation of supply and demand for imbalance energy N2 - Frequency stability requires equalizing supply and demand for electricity at short time scales. Such electricity balancing is often understood as a sequential process in which random shocks, such as weather events, cause imbalances that system operators close by activating balancing reserves. By contrast, we study electricity balancing as a market where the equilibrium price (imbalance price) and quantity (system imbalance) are determined by supply and demand. System operators supply imbalance energy by activating reserves; market parties that, deliberately or not, deviate from schedules create a demand for imbalance energy. The incentives for deliberate strategic deviations emerge from wholesale market prices and the imbalance price. We empirically estimate the demand curve of imbalance energy, which describes how sensitive market parties are to imbalance prices. To overcome the classical endogeneity problem of price and quantity, we deploy instruments derived from a novel theoretical framework. Using data from Germany, we find a decline in the demand for imbalance energy by 2.2 MW for each increase in the imbalance price by EUR 1 per MWh. This significant price response is remarkable because the German regulator prohibits strategic deviations. We also estimate cross-market equilibriums between intraday and imbalance markets, finding that a shock to the imbalance price triggers a subsequent adjustment of the intraday price. KW - Electricity balancing, Intraday electricity market, Imbalance energy KW - Centre for Sustainability Y1 - 2021 U6 - https://doi.org/10.1016/j.eneco.2021.105455 ER - TY - JOUR A1 - Cloete, Schalk A1 - Ruhnau, Oliver A1 - Hirth, Lion T1 - On capital utilization in the hydrogen economy: The quest to minimize idle capacity in renewables-rich energy systems JF - International Journal of Hydrogen Energy N2 - The hydrogen economy is currently experiencing a surge in attention, partly due to the possibility of absorbing wind and solar energy production peaks through electrolysis. A fundamental challenge with this approach is low utilization rates of various parts of the integrated electricity-hydrogen system. To assess the importance of capacity utilization, this paper introduces a novel stylized numerical energy system model incorporating the major elements of electricity and hydrogen generation, transmission and storage, including both "green" hydrogen from electrolysis and "blue" hydrogen from natural gas reforming with CO2 capture and storage (CCS). Balancing renewables with electrolysis results in low utilization of electrolyzers, hydrogen pipelines and storage infrastructure, or electricity transmission networks, depending on whether electrolyzers are co-located with wind farms or demand centers. Blue hydrogen scenarios face similar constraints. High renewable shares impose low utilization rates of CO2 capture, transport and storage infrastructure for conventional CCS, and of hydrogen transmission and storage infrastructure for a novel process (gas switching reforming) that enables flexible power and hydrogen production. In conclusion, both green and blue hydrogen can facilitate the integration of wind and solar energy, but the cost related to low capacity utilization erodes much of the expected economic benefit. KW - Hydrogen economy KW - Energy system model KW - Decarbonization KW - CO2 capture and storage KW - Variable renewable energy KW - Centre for Sustainability Y1 - 2021 U6 - https://doi.org/10.1016/j.ijhydene.2020.09.197 VL - 46 IS - 1 SP - 169 EP - 188 ER - TY - RPRT A1 - Khanna, Tarun A1 - Baiocchi, Giovanni A1 - Callaghan, Max W. A1 - Creutzig, Felix A1 - Bogdan Guias, Horia A1 - Haddaway, Neal A1 - Hirth, Lion A1 - Javaid, Aneeque A1 - Koch, Nicolas A1 - Laukemper, Sonja A1 - Loeschel, Andreas A1 - Del Mar Zamora, Maria A1 - Minx, Jan C. T1 - Reducing carbon emissions of households through monetary incentives and behavioral interventions: a meta-analysis N2 - Despite the importance of evaluating all mitigation options so as to inform policy decisions addressing climate change, a systematic analysis of household-scale interventions to reduce carbon emissions is missing. Here, we address this gap through a state-of-the-art machine-learning assisted meta-analysis to comparatively assess the effectiveness of a range of monetary and behavioral interventions in energy demand of residential buildings. We identify 122 studies and extract 360 effect sizes representing trials on 1.2 million households in 25 countries. We find that all the studied interventions reduce energy consumption of households. Our meta-regression evidences that monetary incentives are on an average more effective than behavioral interventions, but deploying the right combinations of interventions together can increase overall effectiveness. We estimate global cumulative emissions reduction of 8.64 Gt CO2 by 2040, though deploying the most effective packages and interventions could result in greater reduction. While modest, this potential should be viewed in conjunction with the need for de-risking mitigation with energy demand reductions and realizing substantial co-benefits.  Y1 - 2021 U6 - https://doi.org/10.21203/rs.3.rs-124386/v1 ER - TY - JOUR A1 - Blume-Werry, Eike A1 - Faber, Thomas A1 - Hirth, Lion A1 - Huber, Claus A1 - Everts, Martin T1 - Eyes on the Price: Which Power Generation Technologies Set the Market Price? JF - Economics of Energy & Environmental Policy N2 - Upon discussion of price setting on electricity wholesale markets, many refer to the so-called merit order model. Conventional wisdom holds that during most hours of the year, coal- or natural gas-fired power plants set the price on European markets. In this context, this paper analyses price setting on European power markets. We use a fundamental electricity market model of interconnected bidding zones to determine hourly price-setting technologies for the year 2020. We find a price-setting pattern that is more complex and nuanced than the conventional wisdom suggests: across all researched countries, coal- and natural gas-fired power plants set the price for only 40 per cent of all hours. Other power generation technologies such as wind, biomass, hydro and nuclear power plants as well as lignite-fired plants set the price during the rest of the year. On some markets, the price setting is characterised by a high level of interconnectivity and thus foreign influence – as illustrated by the example of the Netherlands. During some 75 per cent of hours, foreign power plants set the price on the Dutch market, whilst price setting in other more isolated markets is barely affected by foreign markets. Hence, applying the price setting analysis to the proposed Dutch carbon price floor, we show that different carbon prices have little effect on the technological structure of the price-setting units. In this respect, the impacts of the unilateral initiative are limited. There are, however, considerable changes to be observed in wholesale power prices, import/export balances as well as production volumes and subsequent CO2 outputs of lignite-, coal- and gas-fired power plants. Y1 - 2021 U6 - https://doi.org/10.5547/2160-5890.10.1.eblu VL - 10 IS - 1 ER - TY - RPRT A1 - Ehrhart, Karl-Martin A1 - Eicke, Anselm A1 - Hirth, Lion A1 - Ocker, Fabian A1 - Ott, Marion A1 - Schlecht, Ingmar A1 - Wang, Runxi T1 - Analysis of a Capacity-Based Redispatch Mechanism N2 - This paper discusses a capacity-based redispatch mechanism in which awarded market participants are compensated for their availability for redispatch, rather than activation. The rationale is to develop a market design that prevents so-called “inc-dec gaming” when including flexible consumers with a market-based approach. We conduct a game-theoretical analysis of a capacity-based redispatch mechanism. Our analysis reveals that despite its intention, the capacity-based redispatch is prone to undesirable behavior of market participants. The reason is that the availability payment incentivizes participants to change their energy consumption (generation) behavior. However, this also applies to undesired participants who increase the redispatch requirement through participation. Under certain assumptions, the additional redispatch potential equals the additional redispatch demand it creates. Consequently, the mechanism does not resolve network constraints, while causing costs for the compensation payments. Furthermore, we study three alternative implementation options, none of which resolves the underlying problem. It follows from our analysis that a mechanism can only be promising if it is capable to distinguish between the potential participants to exclude the undesirable ones. Y1 - 2024 U6 - https://doi.org/10.2139/ssrn.4830366 PB - ZEW – Leibniz-Zentrum für Europäische Wirtschaftsforschung GmbH CY - Mannheim ER - TY - RPRT A1 - Tiedemann, Silvana A1 - Sanchez Canales, Jorge A1 - Schur, Felix A1 - Sgarlato, Raffaele A1 - Hirth, Lion A1 - Ruhnau, Oliver A1 - Peters, Jonas T1 - Identifying Elasticities in Autocorrelated Time Series Using Causal Graphs N2 - The price elasticity of demand can be estimated from observational data using instrumental variables (IV). However, naive IV estimators may be inconsistent in settings with autocorrelated time series. We argue that causal time graphs can simplify IV identification and help select consistent estimators. To do so, we propose to first model the equilibrium condition by an unobserved confounder, deriving a directed acyclic graph (DAG) while maintaining the assumption of a simultaneous determination of prices and quantities. We then exploit recent advances in graphical inference to derive valid IV estimators, including estimators that achieve consistency by simultaneously estimating nuisance effects. We further argue that observing significant differences between the estimates of presumably valid estimators can help to reject false model assumptions, thereby improving our understanding of underlying economic dynamics. We apply this approach to the German electricity market, estimating the price elasticity of demand on simulated and real-world data. The findings underscore the importance of accounting for structural autocorrelation in IV-based analysis. Y1 - 2024 U6 - https://doi.org/10.48550/arXiv.2409.15530 PB - arXiv ER - TY - JOUR A1 - Ehrhart, Karl-Martin A1 - Eicke, Anselm A1 - Hirth, Lion A1 - Ocker, Fabian A1 - Ott, Marion A1 - Schlecht, Ingmar A1 - Wang, Runxi T1 - Analysis of a capacity-based redispatch mechanism JF - Energy Economics N2 - This paper discusses a capacity-based redispatch mechanism in which awarded market participants are compensated for their availability for redispatch, rather than activation. The rationale is to develop a market design that prevents so-called “inc-dec gaming” when including flexible consumers with a market-based approach. We conduct a game-theoretical analysis of a capacity-based redispatch mechanism. Our analysis reveals that despite its intention, the capacity-based redispatch is prone to undesirable behavior of market participants. The reason is that the availability payment incentivizes participants to change their energy consumption or generation behavior. However, this also applies to undesired participants who increase the redispatch requirement through participation. Under certain assumptions, the additional redispatch potential equals the additional redispatch requirement it creates. Consequently, the mechanism does not resolve network constraints, while causing costs for the compensation payments. Furthermore, we study three alternative implementation options, none of which resolves the underlying problem. It follows from our analysis that a mechanism can only be promising if it is capable to distinguish between the potential participants to exclude the undesired ones. Y1 - 2025 U6 - https://doi.org/10.1016/j.eneco.2025.108751 VL - 149 PB - Elsevier BV ER - TY - RPRT A1 - Ehrhart, Karl-Martin A1 - Eicke, Anselm A1 - Hirth, Lion A1 - Ocker, Fabian A1 - Ott, Marion A1 - Schlecht, Ingmar A1 - Wang, Runxi T1 - Congestion Management Games in Electricity Markets N2 - This paper proposes a game-theoretic model to analyze the strategic behavior of inc-dec gaming in market-based congestion management (redispatch). We extend existing models by considering incomplete information about competitors’ costs and a finite set of providers. We find that these extensions do not dissolve inc-dec gaming, which already occurs in our setup of two regions. We also benchmark market-based redispatch against grid investment, cost-based redispatch, and the Vickrey-Clarke-Groves mechanism. The comparison highlights a significant inefficiency of market-based redispatch and inflated redispatch payments. Finally, we study seven variations of our basic model to assess whether different market fundamentals or market design changes mitigate inc-dec gaming. None of these variations eliminate inc-dec gaming entirely. Y1 - 2022 U6 - https://doi.org/10.2139/ssrn.4300874 PB - ZEW – Leibniz-Zentrum für Europäische Wirtschaftsforschung GmbH CY - Mannheim ER - TY - JOUR A1 - Hirth, Lion A1 - Khanna, Tarun M. A1 - Ruhnau, Oliver T1 - How aggregate electricity demand responds to hourly wholesale price fluctuations JF - Energy Economics N2 - Electricity needs to be consumed at the very moment of production, leading wholesale prices to fluctuate widely at (sub-)hourly time scales. This article investigates the response of aggregate electricity demand to such price variations. Using wind energy as an instrument, we estimate a significant and robust short-term price elasticity of about −0.05 in Germany and attribute this to industrial consumers. As the share of consumption that is exposed to real-time prices (currently less than 25%) expands, we expect the aggregated price elasticity to grow. Y1 - 2024 U6 - https://doi.org/10.1016/j.eneco.2024.107652 SN - 0140-9883 VL - 135 PB - Elsevier BV ER - TY - JOUR A1 - Ruhnau, Oliver A1 - Stiewe, Clemens A1 - Muessel, Jarusch A1 - Hirth, Lion T1 - Natural gas savings in Germany during the 2022 energy crisis JF - Nature Energy N2 - Russia curbed its natural gas supply to Europe in 2021 and 2022, creating a grave energy crisis. This paper empirically estimates the crisis response of natural gas consumers in Germany—for decades the largest export market for Russian gas. Using a multiple regression model, we estimate the response of small consumers, industry, and power stations separately, controlling for the non-linear temperature-heating relationship, seasonality, and trends. We find significant and substantial gas savings for all consumer groups, but with differences in timing and size. For instance, industry started reducing consumption as early as September 2021, while small consumers saved substantially only since March 2022. Across all sectors, gas consumption during the second half of 2022 was 23% below the temperature-adjusted baseline. We discuss the drivers behind these savings and draw conclusions on their role in coping with the crisis. Y1 - 2023 UR - https://nbn-resolving.org/urn:nbn:de:kobv:b1570-opus4-49445 U6 - https://doi.org/10.48462/opus4-4944 N1 - This is a post-peer-review, pre-copyedit version of an article published in Nature Energy. The final authenticated version is available online at: https://doi.org/10.1038/s41560-023-01260-5 ER - TY - JOUR A1 - Schlecht, Ingmar A1 - Maurer, Christoph A1 - Hirth, Lion T1 - Financial contracts for differences: The problems with conventional CfDs in electricity markets and how forward contracts can help solve them JF - Energy Policy N2 - Contracts for differences are widely seen as a cornerstone of Europe's future electricity market design. This paper is about designing such contracts. We identify the dispatch and investment distortions that conventional CfDs cause, the patches used to overcome these shortcomings, and the problems these fixes introduce. We then propose an alternative contract we call “financial” CfD. This hybrid between conventional CfDs and forward contracts mitigates revenue risk to a substantial degree while providing undistorted incentives. Like conventional CfDs, it is long-term and tailored to technology-specific (wind, solar, nuclear) generation patterns but, like forwards, decouples payments from actual generation. The proposed contract mitigates volume risk and avoids margin calls by accepting physical assets as collateral. KW - Management, Monitoring, Policy and Law KW - General Energy Y1 - 2024 U6 - https://doi.org/10.1016/j.enpol.2024.113981 VL - 186 ER -