High electricity price despite expansion in renewables: How market trends shape Germany’s power market in the coming years
Year: 2024
Type: article
Abstract: Expectations about future energy prices are crucial for investment decisions, market reform debates, and public policy. Yet, the recent energy crisis caused dramatic market uncertainty. This study investigates Germany’s near-future wholesale electricity price in the context of evolving market trends. A flexible econometric model is applied to high-frequency, near-time data, spanning January 2015 through May 2023. A potential endogeneity bias of trade is circumvented by an instrumental-variables approach. Results indicate that expanding renewable energy exerts downward pressure on price, countering trends like the nuclear phaseout, a rising carbon price, increased electrification, and a high gas price. The collective impact suggests a considerably higher electricity price in the coming years compared to pre-crisis levels. This finding is corroborated by a fundamental energy system model. The potential rise in renewables’ production volatility may amplify electricity price volatility. A high and volatile near-future electricity price could spur investments in renewables and flexibility technologies but pose challenges for consumers. Our analysis aids evidence-based decision-making amid the post-crisis landscape. • Identification of market tends, which may impact near-future electricity market. • Econometric analysis of German spot price finds significant ceteris-paribus effects. • Scenario analysis finds a notably higher near-future price than before the crisis. • Findings aid evidence-based policymaking and may impact investment decisions. • A high and volatile price spurs flexibility and green supply, but harms consumers.
Source: Energy Policy
Language: English
Subfield: Electrical and Electronic Engineering
Field: Engineering
Domain: Physical Sciences
Open Access status: hybrid
Estimated APC paid: $3,650
OpenAlex ID: W4405266372