IDEAS home Printed from https://ideas.repec.org/p/old/dpaper/357.html
   My bibliography  Save this paper

The impact of heat waves on electricity spot markets

Author

Listed:
  • Anna Pechan

    () (University of Oldenburg, Department of Economics)

  • Klaus Eisenack

    () (University of Oldenburg, Department of Economics)

Abstract

Thermoelectric power plants depend on cooling water drawn from water bodies. Low river run-off and/or high water temperatures limit a plant’s production capacity. This problem may intensify with climate change. To what extent do such capacity reductions affect electricity spot markets? Who bears the consequent costs? How is this influenced by climate change and a change in the electricity generation system? We quantify these effects by means of a bottom-up power generation system model. First, we simulate the German electricity spot market during the heat wave in 2006, and then conduct a sensitivity study that accounts for future climatic and technological conditions. We find an average price increase of 11%, which is even more pronounced during times of peak demand. Production costs accumulate to additional but moderate e15.9 m during the two week period. Due to the price increase producers gain from the heat wave and consumers disproportionately bear the costs. Carbon emissions increase during the heat wave. The price and cost effects are more pronounced and significantly increase if assumptions on heat-sensitive demand, hydro power capacity, net exports and capacity reductions are tightened. These are potential additional effects of climate change. Hence, if mitigation fails or is postponed globally, the impacts on the current energy system are very likely to rise. Increases in feed-in from renewable resources and demand-side management can counter the effects to a considerable degree. Countries with a shift to renewable energy supply can be expected to be much less susceptible to water scarcity than those with a high share of nuclear and coal-fired power plants.

Suggested Citation

  • Anna Pechan & Klaus Eisenack, 2013. "The impact of heat waves on electricity spot markets," Working Papers V-357-13, University of Oldenburg, Department of Economics, revised Jun 2013.
  • Handle: RePEc:old:dpaper:357
    as

    Download full text from publisher

    File URL: http://www.uni-oldenburg.de/fileadmin/user_upload/wire/fachgebiete/vwl/V-357-13.pdf
    File Function: First version, 2013
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Alberini, Anna & Filippini, Massimo, 2011. "Response of residential electricity demand to price: The effect of measurement error," Energy Economics, Elsevier, vol. 33(5), pages 889-895, September.
    3. Weigt, Hannes & Hirschhausen, Christian von, 2008. "Price formation and market power in the German wholesale electricity market in 2006," Energy Policy, Elsevier, vol. 36(11), pages 4227-4234, November.
    4. 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.
    5. Mideksa, Torben K. & Kallbekken, Steffen, 2010. "The impact of climate change on the electricity market: A review," Energy Policy, Elsevier, vol. 38(7), pages 3579-3585, July.
    6. Hoffmann, Bastian & Häfele, Sebastian & Karl, Ute, 2013. "Analysis of performance losses of thermal power plants in Germany – A System Dynamics model approach using data from regional climate modelling," Energy, Elsevier, vol. 49(C), pages 193-203.
    7. Grant R. McDermott & Øivind A. Nilse, 2014. "Electricity Prices, River Temperatures, and Cooling Water Scarcity," Land Economics, University of Wisconsin Press, vol. 90(1), pages 131-148.
    8. Florian Leuthold & Hannes Weigt & Christian Hirschhausen, 2012. "A Large-Scale Spatial Optimization Model of the European Electricity Market," Networks and Spatial Economics, Springer, vol. 12(1), pages 75-107, March.
    9. Rolf Golombek & Sverre Kittelsen & Ingjerd Haddeland, 2012. "Climate change: impacts on electricity markets in Western Europe," Climatic Change, Springer, vol. 113(2), pages 357-370, July.
    10. Kopsakangas Savolainen, Maria & Svento, Rauli, 2012. "Real-Time Pricing in the Nordic Power markets," Energy Economics, Elsevier, vol. 34(4), pages 1131-1142.
    11. Mark Frank, 2003. "An Empirical Analysis of Electricity Regulation on Technical Change in Texas," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(4), pages 313-331, June.
    12. Sensfuß, Frank & Ragwitz, Mario & Genoese, Massimo, 2008. "The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany," Energy Policy, Elsevier, vol. 36(8), pages 3076-3084, August.
    13. Lijesen, Mark G., 2007. "The real-time price elasticity of electricity," Energy Economics, Elsevier, vol. 29(2), pages 249-258, March.
    14. Hagen Koch & Stefan Vögele & Michael Kaltofen & Uwe Grünewald, 2012. "Trends in water demand and water availability for power plants—scenario analyses for the German capital Berlin," Climatic Change, Springer, vol. 110(3), pages 879-899, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Klaus Eisenack & Mathias Mier, 2019. "Peak-load pricing with different types of dispatchability," Journal of Regulatory Economics, Springer, vol. 56(2), pages 105-124, December.
    2. Tol, Richard S. J., 2021. "The Economic Impact of Weather and Climate," FEEM Working Papers 309917, Fondazione Eni Enrico Mattei (FEEM).
    3. Richard S.J. Tol, 2020. "The Economic Impact of Weather and Climate," Video Library 2094, Department of Economics, University of Sussex Business School.
    4. Ronald E. Stewart & Daniel Betancourt & James B. Davies & Deborah Harford & Yaheli Klein & Robert Lannigan & Linda Mortsch & Erin O’Connell & Kathy Tang & Paul H. Whitfield, 2017. "A multi-perspective examination of heat waves affecting Metro Vancouver: now into the future," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 87(2), pages 791-815, June.
    5. Santágata, Daniela M. & Castesana, Paula & Rössler, Cristina E. & Gómez, Darío R., 2017. "Extreme temperature events affecting the electricity distribution system of the metropolitan area of Buenos Aires (1971–2013)," Energy Policy, Elsevier, vol. 106(C), pages 404-414.
    6. Richard S.J. Tol, 2020. "The Economic Impact of Weather and Climate," Video Library 2094, Department of Economics, University of Sussex Business School.
    7. Steinhäuser, J. Micha & Eisenack, Klaus, 2020. "How market design shapes the spatial distribution of power plant curtailment costs," Energy Policy, Elsevier, vol. 144(C).
    8. Mosquera-López, Stephanía & Uribe, Jorge M. & Manotas-Duque, Diego F., 2018. "Effect of stopping hydroelectric power generation on the dynamics of electricity prices: An event study approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 94(C), pages 456-467.
    9. Eisenack, Klaus, 2016. "Institutional adaptation to cooling water scarcity for thermoelectric power generation under global warming," Ecological Economics, Elsevier, vol. 124(C), pages 153-163.
    10. 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.
    11. Totschnig, G. & Hirner, R. & Müller, A. & Kranzl, L. & Hummel, M. & Nachtnebel, H.-P. & Stanzel, P. & Schicker, I. & Formayer, H., 2017. "Climate change impact and resilience in the electricity sector: The example of Austria and Germany," Energy Policy, Elsevier, vol. 103(C), pages 238-248.
    12. J. Micha Steinhäuser & Klaus Eisenack, 2015. "Spatial incidence of large-scale power plant curtailment costs," Working Papers V-379-15, University of Oldenburg, Department of Economics, revised Jul 2015.
    13. Nahmmacher, Paul & Schmid, Eva & Pahle, Michael & Knopf, Brigitte, 2016. "Strategies against shocks in power systems – An analysis for the case of Europe," Energy Economics, Elsevier, vol. 59(C), pages 455-465.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eisenack, Klaus, 2016. "Institutional adaptation to cooling water scarcity for thermoelectric power generation under global warming," Ecological Economics, Elsevier, vol. 124(C), pages 153-163.
    2. Steinhäuser, J. Micha & Eisenack, Klaus, 2020. "How market design shapes the spatial distribution of power plant curtailment costs," Energy Policy, Elsevier, vol. 144(C).
    3. Koch, Hagen & Vögele, Stefan, 2013. "Hydro-climatic conditions and thermoelectric electricity generation – Part I: Development of models," Energy, Elsevier, vol. 63(C), pages 42-51.
    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. Silvio Pereira-Cardenal & Henrik Madsen & Karsten Arnbjerg-Nielsen & Niels Riegels & Roar Jensen & Birger Mo & Ivar Wangensteen & Peter Bauer-Gottwein, 2014. "Assessing climate change impacts on the Iberian power system using a coupled water-power model," Climatic Change, Springer, vol. 126(3), pages 351-364, October.
    6. J. Micha Steinhäuser & Klaus Eisenack, 2015. "Spatial incidence of large-scale power plant curtailment costs," Working Papers V-379-15, University of Oldenburg, Department of Economics, revised Jul 2015.
    7. Dirk Rübbelke & Stefan Vögele, 2013. "Short-term distributional consequences of climate change impacts on the power sector: who gains and who loses?," Climatic Change, Springer, vol. 116(2), pages 191-206, January.
    8. Emodi, Nnaemeka Vincent & Chaiechi, Taha & Alam Beg, A.B.M. Rabiul, 2019. "Are emission reduction policies effective under climate change conditions? A backcasting and exploratory scenario approach using the LEAP-OSeMOSYS Model," Applied Energy, Elsevier, vol. 236(C), pages 1183-1217.
    9. Pechan, A., 2017. "Where do all the windmills go? Influence of the institutional setting on the spatial distribution of renewable energy installation," Energy Economics, Elsevier, vol. 65(C), pages 75-86.
    10. 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.
    11. 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.
    12. 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.
    13. Hoffmann, Bastian & Häfele, Sebastian & Karl, Ute, 2013. "Analysis of performance losses of thermal power plants in Germany – A System Dynamics model approach using data from regional climate modelling," Energy, Elsevier, vol. 49(C), pages 193-203.
    14. Grant R. McDermott & Øivind A. Nilse, 2014. "Electricity Prices, River Temperatures, and Cooling Water Scarcity," Land Economics, University of Wisconsin Press, vol. 90(1), pages 131-148.
    15. Jie Yang & Yijing Huang & Kenji Takeuchi, 2020. "Does Drought Increase Carbon Emissions? Evidence from Southwestern China," Discussion Papers 2015, Graduate School of Economics, Kobe University.
    16. Foster, John & Bell, William Paul & Wild, Phillip & Sharma, Deepak & Sandu, Suwin & Froome, Craig & Wagner, Liam & Misra, Suchi & Bagia, Ravindra, 2013. "Analysis of institutional adaptability to redress electricity infrastructure vulnerability due to climate change," MPRA Paper 47787, University Library of Munich, Germany.
    17. Ciscar, Juan-Carlos & Dowling, Paul, 2014. "Integrated assessment of climate impacts and adaptation in the energy sector," Energy Economics, Elsevier, vol. 46(C), pages 531-538.
    18. Friedrich Kunz, 2013. "Improving Congestion Management: How to Facilitate the Integration of Renewable Generation in Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    19. Rolf Golombek & Sverre Kittelsen & Ingjerd Haddeland, 2012. "Climate change: impacts on electricity markets in Western Europe," Climatic Change, Springer, vol. 113(2), pages 357-370, July.
    20. Korbinian von Blanckenburg & Marc Hanfeld & Konstantin A. Kholodilin, 2013. "A Market Screening Model for Price Inconstancies: Empirical Evidence from German Electricity Markets," Discussion Papers of DIW Berlin 1274, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    Electricity Market; Heat Wave; Germany; Climate Change;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:old:dpaper:357. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catharina Schramm). General contact details of provider: http://edirc.repec.org/data/fwoldde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.