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The merit order effect of wind and photovoltaic electricity generation in Germany 2008–2016: Estimation and distributional implications

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  • Cludius, Johanna
  • Hermann, Hauke
  • Matthes, Felix Chr.
  • Graichen, Verena

Abstract

Generation from renewable energy sources in Germany has experienced a considerable uptake in recent years. Mainly responsible for this development is the German Renewable Energy Sources Act (Erneuerbare Energien Gesetz, EEG). This paper considers redistributive implications of the EEG for different electricity consumers. Using time-series regression analysis, we show that electricity generation by wind and PV has reduced spot market prices considerably by 6€/MWh in 2010 rising to 10€/MWh in 2012. We use these results to build a near-term forecasting tool for merit order effects, projected to reach 14-16€/MWh in 2016. On the other hand, the costs of the EEG are passed forward to consumers in the form of a surcharge. Our findings highlight significant redistributive transfers under the current design of the EEG. In particular, some energy-intensive industries are benefiting from lower wholesale electricity prices whilst being largely exempted from contributing to the costs of the scheme. We also highlight implications of our results for other areas for reform of the EEG, such as adequate remuneration mechanisms that ensure efficient operation and investment decisions are made under the scheme. More generally, these findings suggest that policy makers need to integrate distributional assessments into policy design and implementation.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:eneeco:v:44:y:2014:i:c:p:302-313
    DOI: 10.1016/j.eneco.2014.04.020
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    More about this item

    Keywords

    Renewable electricity; Merit order effect; Industry exemptions; Distributional implications;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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