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The plunge in German electricity futures prices – Analysis using a parsimonious fundamental model

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  • Kallabis, Thomas
  • Pape, Christian
  • Weber, Christoph

Abstract

The German market has seen a plunge in wholesale electricity prices from 2007 until 2014, with base futures prices dropping by more than 40%. This is frequently attributed to the unexpected high increase in renewable power generation. Using a parsimonious fundamental model, we determine the respective impact of supply and demand shocks on electricity futures prices. The used methodology is based on a piecewise linear approximation of the supply stack and time-varying price-inelastic demand. This parsimonious model is able to replicate electricity futures prices and discover non-linear dependencies in futures price formation. We show that emission prices have a higher impact on power prices than renewable penetration. Changes in renewables, demand and installed capacities turn out to be similarly important for explaining the decrease in operation margins of conventional power plants. We thus argue for the establishment of an independent authority to stabilize emission prices.

Suggested Citation

  • Kallabis, Thomas & Pape, Christian & Weber, Christoph, 2016. "The plunge in German electricity futures prices – Analysis using a parsimonious fundamental model," Energy Policy, Elsevier, vol. 95(C), pages 280-290.
  • Handle: RePEc:eee:enepol:v:95:y:2016:i:c:p:280-290
    DOI: 10.1016/j.enpol.2016.04.025
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    References listed on IDEAS

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    1. repec:gam:jeners:v:11:y:2018:i:5:p:1256-:d:146307 is not listed on IDEAS
    2. repec:eee:renene:v:113:y:2017:i:c:p:1111-1121 is not listed on IDEAS
    3. Christian Furtwaengler & Christoph Weber, "undated". "Reserve Provision by CHP Units and its Impact on Equilibria in Spot and Reserve Markets," EWL Working Papers 1803, University of Duisburg-Essen, Chair for Management Science and Energy Economics.
    4. repec:eee:enepol:v:117:y:2018:i:c:p:263-277 is not listed on IDEAS
    5. Christian Pape, 2017. "The impact of intraday markets on the market value of flexibility–Decomposing effects on profile and the imbalance costs," EWL Working Papers 1711, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Dec 2017.
    6. Philip Beran & Christian Pape & Christoph Weber, 2018. "Modelling German electricity wholesale spot prices with a parsimonious fundamental model – Validation and application," EWL Working Papers 1801, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Mar 2018.
    7. Bublitz, Andreas & Keles, Dogan & Zimmermann, Florian & Fraunholz, Christoph & Fichtner, Wolf, 2018. "A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms," Working Paper Series in Production and Energy 27, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).
    8. repec:eee:enepol:v:107:y:2017:i:c:p:323-336 is not listed on IDEAS
    9. repec:eee:eneeco:v:69:y:2018:i:c:p:280-294 is not listed on IDEAS

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