Price formation and intersectoral distributional effects in a fully decarbonised European electricity market
Year: 2025
Type: article
Abstract: Traditionally, wholesale electricity prices were driven by fossil power plants' fuel costs. Optimising the dispatch in five scenarios of fully decarbonised, sector-coupled European power systems, we show how future electricity prices continue to be driven by fuel prices. In contrast to today’s market, however, their impact can also result from opportunity costs of cross-sectoral demand side technologies. Particularly, we find that electrolysers become the main price-setting technology in Europe in the presence of a substantial domestic hydrogen demand and abundant low-variable-cost electricity generation. Consequently, future electricity prices highly depend on uncertain political and technological developments. While price-responsive electricity consumers are able to adapt to varying price levels, investors in variable renewables and inflexible electricity consumers are similarly exposed to significant price risks. Therefore, they could mutually benefit from risk-mitigating instruments. In the hydrogen sector, producers and consumers do not share such a common interest. Hydrogen consumers’ final energy consumption costs vary substantially across scenarios and countries, whereas electrolysers recover their costs in a fairly robust manner.
Source: Advances in Applied Energy
Language: English
Subfield: Electrical and Electronic Engineering
Field: Engineering
Domain: Physical Sciences
Open Access status: gold
Estimated APC paid: $4,360
OpenAlex ID: W7083298193