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What caused the drop of European electricity prices? A factor decomposition analysis

  • European wholesale electricity prices have dropped by early two thirds since their all-time high around 2008. Different factors have been blamed, or praised, for having caused the price slump: the expansion of renewable energy; the near-collapse of the European emissions trading scheme; over-optimistic power plant investments; a decline in final electricity consumption; and cheap coal and natural gas. This ex-post study of European electricity markets from 2008 to 2015 uses a fundamental power market model to quantify their individual contributions on day-ahead prices. The two countries we study in detail, Germany and Sweden,differ significantly: fuel and CO2 prices were important price drivers in Germany, but in Sweden it was electricity demand. This difference is explained by the nature of the hydro-dominate Nordic electricity system. In both countries, however, the single largest factor depressing prices was the expansion of renewable energy. At the same time, Germany’s nuclear phase-out had an upward effect on prices. If one defines the Energiewende as the combination of these two policies, its net effect on power prices was negligible.

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Metadaten
Document Type:Article
Language:English
Author(s):Lion HirthORCiD
Parent Title (English):The Energy Journal
ISSN:0195-6574
ISSN:1944-9089
Publication year:2018
Embargo Date:2020/01/01
Publishing Institution:Hertie School
First Page:143
Last Page:157
Related URL:http://www.iaee.org/en/publications/download-view.aspx?id=3031
DOI:https://doi.org/10.5547/01956574.39.1.lhir
Release Date:2017/06/28
Tag:electricity price; ex-post analysis; utility crisis
Volume:39
Issue:1
Notes:
This is a post-peer-review, pre-copyedit version of an article published in The Energy Journal. The final authenticated version is available online at: DOI 10.5547/01956574.39.1.lhir
Hertie School Research:Centre for Sustainability
Licence of document (German):Metadaten (öffentlich), post-print
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