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Electricity Prices, River Temperatures and Cooling Water Scarcity

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  • 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.

Suggested Citation

  • McDermott, Grant R. & Nilsen, Øivind Anti, 2012. "Electricity Prices, River Temperatures and Cooling Water Scarcity," IZA Discussion Papers 6842, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6842
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    Cited by:

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    3. Machiel Mulder, 2015. "Competition in the Dutch Electricity Market: An Empirical Analysis over 2006-2011," The Energy Journal, , vol. 36(2), pages 1-28, April.
    4. Eyer, Jonathan & Wichman, Casey J., 2018. "Does water scarcity shift the electricity generation mix toward fossil fuels? Empirical evidence from the United States," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 224-241.
    5. Pechan, Anna & Eisenack, Klaus, 2014. "The impact of heat waves on electricity spot markets," Energy Economics, Elsevier, vol. 43(C), pages 63-71.
    6. Yanyan Ouyang & Chuanwang Sun & Xiaonan Wei & Chuangyu Xie, 2023. "Will Temperature Changes in the Host Country Reduce the Inflow of International Direct Investment? Micro Evidence from Chinese Listed Companies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(4), pages 781-806, December.
    7. 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.
    8. Marine Lanet & Laurent Li & Hervé Le Treut, 2024. "A framework to assess climate change effects on surface air temperature and soil moisture and application to Southwestern France," Climatic Change, Springer, vol. 177(12), pages 1-17, December.
    9. Emily Cox, 2016. "Assessing energy security in a lowcarbon context: the case of electricity in the UK," SPRU Working Paper Series 2016-07, SPRU - Science Policy Research Unit, University of Sussex Business School.
    10. Kaori Tembata & Kenji Takeuchi, 2018. "The Impact Of Climate Variability On Drought Management: Evidence From Japanese River Basins," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 9(04), pages 1-20, November.
    11. Bogmans, Christian W.J. & Dijkema, Gerard P.J. & van Vliet, Michelle T.H., 2017. "Adaptation of thermal power plants: The (ir)relevance of climate (change) information," Energy Economics, Elsevier, vol. 62(C), pages 1-18.
    12. Kaori Tembata & Kenji Takeuchi, 2019. "Floods and Exports: An Empirical Study on Natural Disaster Shocks in Southeast Asia," Economics of Disasters and Climate Change, Springer, vol. 3(1), pages 39-60, April.
    13. Eskeland, Gunnar S. & Rive, Nathan A. & Mideksa, Torben K., 2012. "Europe’s climate goals and the electricity sector," Energy Policy, Elsevier, vol. 41(C), pages 200-211.
    14. 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.
    15. 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.
    16. Bergler, Julian & Heim, Sven & Hüschelrath, Kai, 2017. "Strategic capacity withholding through failures in the German-Austrian electricity market," Energy Policy, Elsevier, vol. 102(C), pages 210-221.
    17. Goicoechea,Ana & Lang,Megan Elizabeth, 2023. "Firms and Climate Change in Low- and Middle-Income Countries," Policy Research Working Paper Series 10644, The World Bank.
    18. Steinhäuser, J. Micha & Eisenack, Klaus, 2020. "How market design shapes the spatial distribution of power plant curtailment costs," Energy Policy, Elsevier, vol. 144(C).
    19. Grossi, Luigi & Heim, Sven & Waterson, Michael, 2017. "The impact of the German response to the Fukushima earthquake," Energy Economics, Elsevier, vol. 66(C), pages 450-465.

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    More about this item

    Keywords

    water scarcity; thermal-based power; water-energy nexus;
    All these keywords.

    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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