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Market Integration and Wind Generation: An Empirical Analysis of the Impact of Wind Generation on Cross-Border Power Prices

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  • Sébastien Annan-Phan and Fabien A. Roques

Abstract

European power markets have become more integrated and renewables have a significant effect on power prices and cross-border exchanges. This paper investigates empirically how the effects of renewables are affected by market expansion across two adjacent countries (France and Germany), based on market data and proprietary data on book orders. We find that wind production lowers power prices on average and increases volatility, not only domestically but also across borders. Using multiple counterfactuals, we examine how our results depend on the level of interconnection and find that further interconnection capacity would decrease price volatility in both countries since the benefits of a larger market would outweigh the contagion effects of volatility. Our findings have important policy implications as they demonstrate the need to coordinate support policies for renewables and policies to support transmission capacity expansion in order to mitigate the impact of volatility on power prices in neighboring power markets.

Suggested Citation

  • Sébastien Annan-Phan and Fabien A. Roques, 2018. "Market Integration and Wind Generation: An Empirical Analysis of the Impact of Wind Generation on Cross-Border Power Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    • Handle: RePEc:aen:journl:ej39-3-roques
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    Cited by:

    1. Zimmermann, Florian & Keles, Dogan, 2023. "State or market: Investments in new nuclear power plants in France and their domestic and cross-border effects," Energy Policy, Elsevier, vol. 173(C).
    2. Shirizadeh, Behrang & Quirion, Philippe, 2021. "Low-carbon options for the French power sector: What role for renewables, nuclear energy and carbon capture and storage?," Energy Economics, Elsevier, vol. 95(C).
    3. Zimmermann, Florian & Keles, Dogan, 2022. "State or market: Investments in new nuclear power plants in France and their domestic and cross-border effects," Working Paper Series in Production and Energy 64, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).
    4. Chyong, C. & Pollitt, M. & Cruise, R., 2019. "Can wholesale electricity prices support “subsidy-free” generation investment in Europe?," Cambridge Working Papers in Economics 1955, Faculty of Economics, University of Cambridge.
    5. Jha, Amit Prakash & Mahajan, Aarushi & Singh, Sanjay Kumar & Kumar, Piyush, 2022. "Renewable energy proliferation for sustainable development: Role of cross-border electricity trade," Renewable Energy, Elsevier, vol. 201(P1), pages 1189-1199.
    6. Guo, B. & Newbery, D., 2020. "The Cost of Carbon Leakage: Britain’s Carbon Price Support and Cross-border Electricity Trade," Cambridge Working Papers in Economics 2014, Faculty of Economics, University of Cambridge.
    7. Samarth Kumar & David Schönheit & Matthew Schmidt & Dominik Möst, 2019. "Parsing the Effects of Wind and Solar Generation on the German Electricity Trade Surplus," Energies, MDPI, vol. 12(18), pages 1-17, September.
    8. Guo, B. & Newbery, D. & Gissey, G., 2019. "The Impact of Unilateral Carbon Taxes on Cross-Border Electricity Trading," Cambridge Working Papers in Economics 1951, Faculty of Economics, University of Cambridge.
    9. Bowei Guo & Newbery David, 2023. "The Cost of Carbon Leakage: Britain’s Carbon Price Support and Cross-border Electricity Trade," The Energy Journal, , vol. 44(1), pages 9-32, January.
    10. Shirizadeh, Behrang & Quirion, Philippe, 2022. "The importance of renewable gas in achieving carbon-neutrality: Insights from an energy system optimization model," Energy, Elsevier, vol. 255(C).

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    JEL classification:

    • F0 - International Economics - - General

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