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Electricity Prices, River Temperatures and Cooling Water Scarcity

Author Info

Listed author(s):
  • McDermott, Grant R.

    ()

    (Norwegian School of Economics)

  • Nilsen, Øivind Anti

    ()

    (Norwegian School of Economics)

Abstract

Thermal-based power stations rely on water for cooling purposes. These water sources may be subject to incidents of scarcity, environmental regulations and competing economic concerns. This paper analyses the effect of water scarcity and increased river temperatures on German electricity prices from 2002 to 2009. Having controlled for demand effects, the results indicate that the electricity price is significantly impacted by both a change in river temperatures and the relative abundance of river water. An implication is that future climate change will affect electricity prices not only through changes in demand, but also via increased water temperatures and scarcity.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6842.

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Length: 41 pages
Date of creation: Sep 2012
Handle: RePEc:iza:izadps:dp6842
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Keywords: water scarcity; thermal-based power; water-energy nexus;

Other versions of this item:

Find related papers by JEL classification:
  • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
  • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
  • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
  • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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  1. Koch, Hagen & Vögele, Stefan, 2009. "Dynamic modelling of water demand, water availability and adaptation strategies for power plants to global change," Ecological Economics, Elsevier, vol. 68(7), pages 2031-2039, May.
  2. Viehmann, Johannes, 2011. "Risk premiums in the German day-ahead Electricity Market," Energy Policy, Elsevier, vol. 39(1), pages 386-394, January.
  3. Kopytko, Natalie & Perkins, John, 2011. "Climate change, nuclear power, and the adaptation-mitigation dilemma," Energy Policy, Elsevier, vol. 39(1), pages 318-333, January.
  4. Bessec, Marie & Fouquau, Julien, 2008. "The non-linear link between electricity consumption and temperature in Europe: A threshold panel approach," Energy Economics, Elsevier, vol. 30(5), pages 2705-2721, September.
  5. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/GMM estimation and testing," CERT Discussion Papers 0706, Centre for Economic Reform and Transformation, Heriot Watt University.
  6. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  7. Feeley, Thomas J. & Skone, Timothy J. & Stiegel, Gary J. & McNemar, Andrea & Nemeth, Michael & Schimmoller, Brian & Murphy, James T. & Manfredo, Lynn, 2008. "Water: A critical resource in the thermoelectric power industry," Energy, Elsevier, vol. 33(1), pages 1-11.
  8. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/generalized method of moments estimation and testing," Stata Journal, StataCorp LP, vol. 7(4), pages 465-506, December.
  9. repec:dau:papers:123456789/8180 is not listed on IDEAS
  10. Kristin Linnerud & Torben K. Mideksa & Gunnar S. Eskeland, 2011. "The Impact of Climate Change on Nuclear Power Supply," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 149-168.
  11. Boogert, Alexander & Dupont, Dominique, 2005. "The nature of supply side effects on electricity prices: The impact of water temperature," Economics Letters, Elsevier, vol. 88(1), pages 121-125, July.
  12. Felix Müsgens, 2006. "QUANTIFYING MARKET POWER IN THE GERMAN WHOLESALE ELECTRICITY MARKET USING A DYNAMIC MULTI-REGIONAL DISPATCH MODEL -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 54(4), pages 471-498, December.
  13. Halvorsen, Robert, 1975. "Residential Demand for Electric Energy," The Review of Economics and Statistics, MIT Press, vol. 57(1), pages 12-18, February.
  14. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
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Cited by:

  1. Machiel Mulder, 2015. "Competition in the Dutch Electricity Market: An Empirical Analysis over 2006-2011," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
  2. Pechan, Anna & Eisenack, Klaus, 2014. "The impact of heat waves on electricity spot markets," Energy Economics, Elsevier, vol. 43(C), pages 63-71.
  3. Grossi, Luigi & Heim, Sven & Waterson, Michael, 2014. "A vision of the European energy future? The impact of the German response to the Fukushima earthquake," The Warwick Economics Research Paper Series (TWERPS) 1047, University of Warwick, Department of Economics.
  4. Mulder, Machiel & Scholtens, Bert, 2013. "The impact of renewable energy on electricity prices in the Netherlands," Renewable Energy, Elsevier, vol. 57(C), pages 94-100.
  5. Zheng, Xinzhu & Wang, Can & Cai, Wenjia & Kummu, Matti & Varis, Olli, 2016. "The vulnerability of thermoelectric power generation to water scarcity in China: Current status and future scenarios for power planning and climate change," Applied Energy, Elsevier, vol. 171(C), pages 444-455.

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