What Caused the Drop in European Electricity Prices? A Factor Decomposition Analysis

By Lion Hirth. 2018

119 citations recorded by the source corpus.

Abstract European wholesale electricity prices have dropped by nearly 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.

Subfields: Electrical and Electronic Engineering

View Paper: https://www.semanticscholar.org/paper/0b611699fde4d123685c941191bb4a2edf9e0918

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In Electrical and Electronic Engineering

Citations in the corpus

Market design for a high-renewables European electricity system (2018, background): “While other factors, such as falling fossil fuel and carbon prices also played a role, the estimates by Hirth (2016) suggest that almost half of the German electricity price decline can be attributed to the expansion of RES.”
A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms (2019, background): “, decreasing prices for hard coal and carbon emission certificates, caused a significant drop in electricity prices (see Bublitz et al., 2017; Hirth, 2018; Kallabis et al., 2016) that drastically complicated the recovering of operating expenses for conventional capacities (see Fig.”