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The Impacts of Variable Renewable Production and Market Coupling on the Convergence of French and German Electricity Prices

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  • Jan Horst Keppler, Sebastien Phan, and Yannick Le Pen

Abstract

This paper estimates the impact of two separate factors on the spread between French and German electricity prices, the amount of production by variable renewables and "market coupling". As renewable electricity production is concentrated during a limited number of hours with favourable meteorological conditions and interconnection capacity between France and Germany is limited, increases in production of wind and solar PV in Germany lead to increasing price spreads between the two countries. Our estimates based on a sample of 24 hourly French and German day-ahead prices from November 2009 to June 2013 confirm that renewable electricity production in Germany has a strongly positive impact on price divergence. On the other hand, market coupling, the establishment of a combined order book on the basis of information of both markets, which was introduced in November 2010, can be shown to have mitigated the observed price divergence. Both results have policy relevant implications for welfare and the optimal provision of interconnection capacity.

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  • Jan Horst Keppler, Sebastien Phan, and Yannick Le Pen, 2016. "The Impacts of Variable Renewable Production and Market Coupling on the Convergence of French and German Electricity Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    • Handle: RePEc:aen:journl:ej37-3-keppler
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    3. Newbery, David & Gissey, Giorgio Castagneto & Guo, Bowei & Dodds, Paul E., 2019. "The private and social value of British electrical interconnectors," Energy Policy, Elsevier, vol. 133(C).
    4. Gugler, Klaus & Haxhimusa, Adhurim & Liebensteiner, Mario, 2016. "Integration and Efficiency of European Electricity Markets: Evidence from Spot Prices," Department of Economics Working Paper Series 226, WU Vienna University of Economics and Business.
    5. Brennan, Noreen & van Rensburg, Thomas M., 2020. "Public preferences for wind farms involving electricity trade and citizen engagement in Ireland," Energy Policy, Elsevier, vol. 147(C).
    6. Adeoye, Omotola & Spataru, Catalina, 2020. "Quantifying the integration of renewable energy sources in West Africa's interconnected electricity network," Renewable and Sustainable Energy Reviews, Elsevier, vol. 120(C).
    7. Sébastien Phan & Fabien Roques, 2015. "Is the depressive effect of renewables on power prices contagious? A cross border econometric analysis," Cambridge Working Papers in Economics 1527, Faculty of Economics, University of Cambridge.
    8. 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.
    9. Yasir Alsaedi & Gurudeo Anand Tularam & Victor Wong, 2020. "Impact of Solar and Wind Prices on the Integrated Global Electricity Spot and Options Markets: A Time Series Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 10(2), pages 337-353.
    10. Theresa Graefe, 2023. "The effect of the Austrian-German bidding zone split on unplanned cross-border flows," Papers 2303.14182, arXiv.org.
    11. Lucia Parisio & Matteo Pelagatti, 2019. "Market coupling between electricity markets: theory and empirical evidence for the Italian–Slovenian interconnection," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(2), pages 527-548, July.
    12. Frondel, Manuel & Kaeding, Matthias & Sommer, Stephan, 2022. "Market premia for renewables in Germany: The effect on electricity prices," Energy Economics, Elsevier, vol. 109(C).
    13. Pfeifer, Antun & Krajačić, Goran & Haas, Reinhard & Duić, Neven, 2020. "Consequences of different strategic decisions of market coupled zones on the development of energy systems based on coal and hydropower," Energy, Elsevier, vol. 210(C).
    14. Tselika, Kyriaki, 2022. "The impact of variable renewables on the distribution of hourly electricity prices and their variability: A panel approach," Energy Economics, Elsevier, vol. 113(C).
    15. Finn Roar Aune & Rolf Golombek, 2020. "Are carbon prices redundant in the 2030 EU climate and energy policy package?," Discussion Papers 940, Statistics Norway, Research Department.
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    17. Rinne, Sonja, 2018. "Radioinactive: Are nuclear power plant outages in France contagious to the German electricity price?," CIW Discussion Papers 3/2018, University of Münster, Center for Interdisciplinary Economics (CIW).

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