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Electricity Prices, River Temperatures and Cooling Water Scarcity

  • McDermott, Grant R.

    ()

    (Norwegian School of Economics)

  • Nilsen, Øivind Anti

    ()

    (Norwegian School of Economics)

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
Date of revision:
Handle: RePEc:iza:izadps:dp6842
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  10. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  11. 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.
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