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Modelling German electricity wholesale spot prices with a parsimonious fundamental model – Validation and application

Author

Listed:
  • Philip Beran
  • Christian Pape
  • Christoph Weber

    (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen))

Abstract

Increasing shares of fluctuating renewable energy, the integration of European electricity grids and markets as well as new technologies induce continuous change in the European energy system. Due to these changes, fundamental electricity system and market models that have been developed and applied in the past are dealing with an increasing number of details inducing correspondingly huge data needs. The complexity of these called parameter-rich models (cf. Weron, 2014) leads to limited transparency, also on the impact of data on results, and makes model backtesting rather cumbersome. At the same time, the validity of future scenarios based on non-validated models is dubious. To complement these highly complicated models, more reduced models may be helpful both for transparency and for backtesting. In this paper, we apply a parsimonious fundamental modelling approach to determine hourly German day-ahead power market prices and production volumes. The methodology approximates the supply stack by a piecewise linear function and considers fundamental information, e.g. power plant capacities and availabilities, fuel prices, must-run production and cross-border exchange. We reduce complexity by considering technology classes, uncoupled time periods and only one market area. Between 2011 and 2015, German day-ahead prices declined by 38% and various reasons have been identified in literature, namely a drop in emission certificate prices, the expansion of renewable energies (RES) or lower fuel prices. However, the decision of the German government to shut down nuclear power plants after the Fukushima nuclear disaster happened at the same time and received too little attention as it rather by itself could have led to an increase in prices. The parsimonious model is able to reproduce the hourly historical prices (2011-2015) with a MAE of 5.6 €/MWh and accurately reproduces the electricity production volumes for most thermal production units. In a case study, we investigate a counterfactual scenario without accelerated nuclear phase-out in Germany after the Fukushima nuclear disaster in 2011. The results indicate that German day-ahead power prices would have fallen by additional 3 €/MWh if the nuclear phase-out would have not occurred. Since coal- and gas-fired production as well as additional imports have substituted production from nuclear power plants, their usage would have dropped in the counterfactual scenario.

Suggested Citation

  • 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.
  • Handle: RePEc:dui:wpaper:1801
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    References listed on IDEAS

    as
    1. 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.
    2. Thure Traber & Claudia Kemfert, 2012. "German Nuclear Phase-out Policy: Effects on European Electricity Wholesale Prices, Emission Prices, Conventional Power Plant Investments and Eletricity Trade," Discussion Papers of DIW Berlin 1219, DIW Berlin, German Institute for Economic Research.
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    Cited by:

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    2. Felten, Björn & Weber, Christoph, 2018. "The value(s) of flexible heat pumps – Assessment of technical and economic conditions," Applied Energy, Elsevier, vol. 228(C), pages 1292-1319.

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    More about this item

    Keywords

    electricity markets; fundamental modelling; nuclear phase-out; german spot prices;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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