The importance of transnational impacts of climate change in a power market

We contribute to the discussion on transnational impacts of climate change by analysing the potential cross-border impacts climate change driven changes in the hydropower potential. We analyse this in the context of the Nordic countries where Norway and Sweden are likely to gain hydropower potential and Finland is likely to experience transnational impacts. We use an economic simulation model and a dynamic optimization model to study the impact of climate change to the production mix, the price of electricity, consumption of electricity and emissions from electricity production. We show that climate change might reduce prices through increased renewables supply, which decreases the profitability of power production. The changes in the inflow profile affect the hydropower profiles over the hydrological year such that the reduced inflow peak in the spring shifts the hydropower production from spring to autumn and winter. In addition the larger inflow increases the share of hydropower in production mix over the year. The emissions per consumed energy unit is going to be decreased because of the decreasing share of the thermal production in the system. However, increased hydropower production reduces prices which in turn increases the quantity demanded. This rebound effect somewhat dampens the emission reduction.