IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v106y2022ics0140988321005600.html
   My bibliography  Save this article

On wholesale electricity prices and market values in a carbon-neutral energy system

Author

Listed:
  • Böttger, Diana
  • Härtel, Philipp

Abstract

Climate and energy policy targets of the European Commission aim to make Europe the first climate-neutral continent by 2050. For low-carbon and net-neutral energy systems primarily based on variable renewable power generation, issues related to the market integration, cannibalisation of revenues, and cost recovery of wind and solar photovoltaics have become major concerns. The traditional discussion of the merit-order effect expects wholesale power prices in a system with 100% renewable energy sources to alternate between very high and very low values. Unlike previous work, we present a structured and technology-specific analysis of the cross-sectoral demand bidding effect for the price formation in low-carbon power markets. Starting from a stylised market arrangement and by successively augmenting it with all relevant technologies, we construct and quantify the cross-sectoral demand bidding effects in future European power markets with the cross-sectoral market modelling framework SCOPE SD. As the main contribution, we explain and substantiate the market clearing effects of new market participants in detail. With this, we focus on hybrid heat supply systems consisting of combined heat and power plants, fuel boilers, thermal storage, and electrical backup units and derive the opportunity costs of these systems. Furthermore, we show the effects of cross-border integration for a large-scale European net-neutral energy scenario. Finally, the detailed information on market clearing effects allows us to evaluate the resulting revenues of all major generation and consumption technology categories on future electricity markets.

Suggested Citation

  • Böttger, Diana & Härtel, Philipp, 2022. "On wholesale electricity prices and market values in a carbon-neutral energy system," Energy Economics, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:eneeco:v:106:y:2022:i:c:s0140988321005600
    DOI: 10.1016/j.eneco.2021.105709
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988321005600
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2021.105709?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Cludius, Johanna & Hermann, Hauke & Matthes, Felix Chr. & Graichen, Verena, 2014. "The merit order effect of wind and photovoltaic electricity generation in Germany 2008–2016: Estimation and distributional implications," Energy Economics, Elsevier, vol. 44(C), pages 302-313.
    2. Ketterer, Janina C., 2014. "The impact of wind power generation on the electricity price in Germany," Energy Economics, Elsevier, vol. 44(C), pages 270-280.
    3. Brown, T. & Reichenberg, L., 2021. "Decreasing market value of variable renewables can be avoided by policy action," Energy Economics, Elsevier, vol. 100(C).
    4. Huppmann, Daniel & Siddiqui, Sauleh, 2018. "An exact solution method for binary equilibrium problems with compensation and the power market uplift problem," European Journal of Operational Research, Elsevier, vol. 266(2), pages 622-638.
    5. Djørup, Søren & Thellufsen, Jakob Zinck & Sorknæs, Peter, 2018. "The electricity market in a renewable energy system," Energy, Elsevier, vol. 162(C), pages 148-157.
    6. Erik Paul Johnson and Matthew E. Oliver, 2019. "Renewable Generation Capacity and Wholesale Electricity Price Variance," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    7. Falko Ueckerdt & Christian Bauer & Alois Dirnaichner & Jordan Everall & Romain Sacchi & Gunnar Luderer, 2021. "Potential and risks of hydrogen-based e-fuels in climate change mitigation," Nature Climate Change, Nature, vol. 11(5), pages 384-393, May.
    8. T. Brown & L. Reichenberg, 2020. "Decreasing market value of variable renewables can be avoided by policy action," Papers 2002.05209, arXiv.org, revised May 2021.
    9. Paul L Joskow, 2019. "Challenges for wholesale electricity markets with intermittent renewable generation at scale: the US experience," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 35(2), pages 291-331.
    10. Sensfuß, Frank & Ragwitz, Mario & Genoese, Massimo, 2008. "The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany," Energy Policy, Elsevier, vol. 36(8), pages 3076-3084, August.
    11. Bernath, Christiane & Deac, Gerda & Sensfuß, Frank, 2021. "Impact of sector coupling on the market value of renewable energies – A model-based scenario analysis," Applied Energy, Elsevier, vol. 281(C).
    12. Lion Hirth, 2018. "What caused the drop in European electricity prices? A factor decomposition analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    13. Panos, Evangelos & Densing, Martin, 2019. "The future developments of the electricity prices in view of the implementation of the Paris Agreements: Will the current trends prevail, or a reversal is ahead?," Energy Economics, Elsevier, vol. 84(C).
    14. O'Neill, Richard P. & Sotkiewicz, Paul M. & Hobbs, Benjamin F. & Rothkopf, Michael H. & Stewart, William R., 2005. "Efficient market-clearing prices in markets with nonconvexities," European Journal of Operational Research, Elsevier, vol. 164(1), pages 269-285, July.
    15. Aaron Praktiknjo and Georg Erdmann, 2016. "Renewable Electricity and Backup Capacities: An (Un-) Resolvable Problem?," The Energy Journal, International Association for Energy Economics, vol. 0(Bollino-M).
    16. Mills, Andrew D. & Wiser, Ryan H., 2015. "Strategies to mitigate declines in the economic value of wind and solar at high penetration in California," Applied Energy, Elsevier, vol. 147(C), pages 269-278.
    17. Ruhnau, Oliver, 2020. "Market-based renewables: How flexible hydrogen electrolyzers stabilize wind and solar market values," EconStor Preprints 227075, ZBW - Leibniz Information Centre for Economics.
    18. Bird, Lori & Lew, Debra & Milligan, Michael & Carlini, E. Maria & Estanqueiro, Ana & Flynn, Damian & Gomez-Lazaro, Emilio & Holttinen, Hannele & Menemenlis, Nickie & Orths, Antje & Eriksen, Peter Børr, 2016. "Wind and solar energy curtailment: A review of international experience," Renewable and Sustainable Energy Reviews, Elsevier, vol. 65(C), pages 577-586.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Diana Bottger & Philipp Hartel, 2021. "On Wholesale Electricity Prices and Market Values in a Carbon-Neutral Energy System," Papers 2105.01127, arXiv.org.
    2. Härtel, Philipp & Korpås, Magnus, 2021. "Demystifying market clearing and price setting effects in low-carbon energy systems," Energy Economics, Elsevier, vol. 93(C).
    3. Thomaßen, Georg & Redl, Christian & Bruckner, Thomas, 2022. "Will the energy-only market collapse? On market dynamics in low-carbon electricity systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 164(C).
    4. Brown, T. & Reichenberg, L., 2021. "Decreasing market value of variable renewables can be avoided by policy action," Energy Economics, Elsevier, vol. 100(C).
    5. Macedo, Daniela Pereira & Marques, António Cardoso & Damette, Olivier, 2020. "The impact of the integration of renewable energy sources in the electricity price formation: is the Merit-Order Effect occurring in Portugal?," Utilities Policy, Elsevier, vol. 66(C).
    6. Nibedita, Barsha & Irfan, Mohd, 2022. "Analyzing the asymmetric impacts of renewables on wholesale electricity price: Empirical evidence from the Indian electricity market," Renewable Energy, Elsevier, vol. 194(C), pages 538-551.
    7. Javier L'opez Prol & Wolf-Peter Schill, 2020. "The Economics of Variable Renewables and Electricity Storage," Papers 2012.15371, arXiv.org.
    8. Maniatis, Georgios I. & Milonas, Nikolaos T., 2022. "The impact of wind and solar power generation on the level and volatility of wholesale electricity prices in Greece," Energy Policy, Elsevier, vol. 170(C).
    9. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
    10. Csereklyei, Zsuzsanna & Qu, Songze & Ancev, Tihomir, 2019. "The effect of wind and solar power generation on wholesale electricity prices in Australia," Energy Policy, Elsevier, vol. 131(C), pages 358-369.
    11. Thao Pham & Killian Lemoine, 2020. "Impacts of subsidized renewable electricity generation on spot market prices in Germany : Evidence from a GARCH model with panel data," Working Papers hal-02568268, HAL.
    12. Auer, Benjamin R., 2016. "How does Germany's green energy policy affect electricity market volatility? An application of conditional autoregressive range models," Energy Policy, Elsevier, vol. 98(C), pages 621-628.
    13. Ruhnau, Oliver & Hirth, Lion & Praktiknjo, Aaron, 2020. "Heating with wind: Economics of heat pumps and variable renewables," Energy Economics, Elsevier, vol. 92(C).
    14. 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.
    15. Gürtler, Marc & Paulsen, Thomas, 2018. "The effect of wind and solar power forecasts on day-ahead and intraday electricity prices in Germany," Energy Economics, Elsevier, vol. 75(C), pages 150-162.
    16. Meus, Jelle & De Vits, Sarah & S'heeren, Nele & Delarue, Erik & Proost, Stef, 2021. "Renewable electricity support in perfect markets: Economic incentives under diverse subsidy instruments," Energy Economics, Elsevier, vol. 94(C).
    17. Bell, William Paul & Wild, Phillip & Foster, John & Hewson, Michael, 2017. "Revitalising the wind power induced merit order effect to reduce wholesale and retail electricity prices in Australia," Energy Economics, Elsevier, vol. 67(C), pages 224-241.
    18. Simshauser, Paul & Newbery, David, 2024. "Non-firm vs priority access: On the long run average and marginal costs of renewables in Australia," Energy Economics, Elsevier, vol. 136(C).
    19. Shimomura, Mizue & Keeley, Alexander Ryota & Matsumoto, Ken'ichi & Tanaka, Kenta & Managi, Shunsuke, 2024. "Beyond the merit order effect: Impact of the rapid expansion of renewable energy on electricity market price," Renewable and Sustainable Energy Reviews, Elsevier, vol. 189(PB).
    20. Percebois, Jacques & Pommeret, Stanislas, 2019. "Storage cost induced by a large substitution of nuclear by intermittent renewable energies: The French case," Energy Policy, Elsevier, vol. 135(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:106:y:2022:i:c:s0140988321005600. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.