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Energy Economics
• How can negative prices come about in Germany?– Mandatory dispatch of wind and solar– “Must-run” generation
• Central Heating and Power plants (CHP)
– Baseload plants don’t like cycling
• For what price would a baseload plant (eg a big nuclear) bid in its electricity?– (DA & ID)
• Day-Ahead market (DA market)– Bid your quantity and price for each hour of the
next day– Market closes at 14:00.– Eg. On 1st June at 13:59, I send in a schedule
for 2nd June with 24 quantity-price bids (one for each hour)
• Intra-Day market (ID market)– Bid for 2 hours ahead– Eg.: On 2nd June, before 3:59 I send in one
quantity-price bid for the hour 6:00-7:00.
DS=MC
€/MWH Uniform price auction
60
0
-150
DS=MC
€/MWH Uniform price auction
60
0
-150
DS=MC
€/MWH Uniform price auction
60
0
-150
DS=MC
€/MWH Uniform price auction
60
0
-150What if these generators have high startup costs? Or they simply cannot ramp down enough so quickly?
DS=MC
€/MWH Uniform price auction
60
0
-150What if these generators have high startup costs? Or they simply cannot ramp down enough so quickly?
DS=MC
€/MWH Uniform price auction
60
0
-150What if these generators have high startup costs? Or they simply cannot ramp down enough so quickly?
Renewables in Germany have mandatory dispatch
DS=MC
€/MWH Uniform price auction
60
0
-150
Renewables in Germany have mandatory dispatch
What would be an improvement here?
DS=MC
€/MWH Uniform price auction
60
0
-150
No mandatory dispatch, renewables bid in at true MC or MC=0
What would be an improvement here?
German electricity wholesale market
• Effect on load-duration curve
Load-duration curve steeper
But net demand more variable
Renewables EfficiencyCarbon emissions
EU’s 20-20-20 strategy for 2020
• Renewables are the solution as proposed by politicians– central planning approach– “picking winners”
• Maybe we should not expect politicians to be the ones who can point out the solution.
• In foreign trade politicians have a terrible track record
2008 Nobel price winner Paul Krugman
How to create a framework that leads to
cleaner electricity?
WITHOUT POLITICIANS PICKING “WINNERS”?
2mT 4mT 5mT
A B C
Emissions:
2mT 4mT 5mT
A B C
Emissions:
4$/T 5$/T 20$/TAbatement cost:
2mT
A B C
4$/T 5$/T 20$/TAbatement cost:Abatement-investment
7$/T
5mT4mT1mT
1$/T
Emissions:
A B C
Abatement cost:Abatement-investment ?Emissions:
• Need the law of one price
• 20-20-20 strategya) 20 reduction of CO2b) 20% increase in efficiencyc) 20% renewables
a) 20 reduction of CO2• How?• Against lowest costs if possible:
efficiency– Market-based– Law of one price…
• Implementation– ETS– tax
A B C
Abatement cost:Abatement-investment
Emissions:
A B C
EMISSION PERMIT MARKET
Competition for
permits
Solution 1:EU Emission Trading Scheme (EU-ETS)
Taxing
Cap-and-trade / Emission Trading System
• 2005- end 2007: Phase 1 (test phase)
• 2007- end 2012: Phase 2 (6.5% below 2005 level)
• 2012- end 2020: Phase 3 (linear 1.74% reduction/year)
Kyoto Protocol
Reduction of 21%
• 20-20-20 strategya) 20 reduction of CO2 (ETS)b) 20% increase in efficiencyc) 20% renewables
1. Points a) (ETS) gives a measure of the cost of point c) (Renewables)
2. Points a) (ETS) and point c) (Renewables)
Source: Böhringer, C., Rosendahl, K,E, 2009. Green serves the dirtiest. Discussion Papers No. 581, April 2009 Statistics Norway, Research Department
http://www.pnl.gov/main/publications/external/technical_reports/PNNL-19225.pdf
Wind generation in Germany
Feed-in tariffs
• 0.50 €/kWh 0.20€/kWh
Coal or gas plant costs
0.04€/kWh
2004 2012
Case of Germany
• Marcantonini, C., Ellerman, D. 2013. The Cost of Abating CO2 Emissions by Renewable Energy Incentives in Germany. EUI Working Paper RSCAS 2013/05.http://fsr.eui.eu/Publications/WORKINGPAPERS/Energy/2013/WP201305.aspx
Wind:±€50/ tCO2
Solar:±€350/ tCO2
Why install any solar, if a ton of CO2 can be abated by wind 7 times cheaper?
Wind:±€50/ tCO2
Solar:±€350/ tCO2
Why install any wind or solar, if a ton of CO2 can be abated by buying and not using a certificate
5 to 35 times cheaper!?
• Spillover externality?– Subsidize R&D or massive deployment?
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