1 machiel mulder and bert scholtens faculty of economics and business university of groningen...
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Machiel Mulder and Bert Scholtens
Faculty of Economics and BusinessUniversity of Groningen
Influence of climate factors on the electricity price
an econometric analysis on the Dutch market over 2006-2011
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1. Background – more wind, solar cells, CHP plants– higher temperatures as a result of climate change (?)
2. Method – reduced-form equation of electricity price– economic factors: demand, fuel price, market power– climate factors: wind, day light, river temperature
3. Data on the Dutch wholesale market
4. Results and conclusions
Outline
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Background: more wind and solar cells0
1020
30G
W
2006 2007 2008 2009 2010 2011(first) jaar
Wind_Neth Wind_Ger0
510
1520
25G
W2006 2007 2008 2009 2010 2011
(first) jaar
Sun_Neth Sun_Ger
Installed WIND capacity (GW) Installed SOLAR capacity (GW)
Dutch market is closely linked to the German market (as part of the NWE market)
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Explaining prices = controlling for demand and supply factors
- time patterns in demand- economic factors affecting demand- market power- fuel costs- environmental restrictions on generation - wind- day light
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Price
Quantity
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Log(APX) = β0
+ β1 log(Demand(-1))
+ β2 log(RSI)
+ β3 log(Gas price(-1))
+ β4 River Temperature
+ β5 log(Wind speed – Netherlands)
+ β6 log(Wind speed - Germany)
+ β7 log(Day light)
+ ε
Model
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Spot prices of electricity, gas and coal
Volatility in day-ahead electricity price decreased strongly
01
002
003
004
005
00In
dex
2006 2007 2008 2009 2010 2011 2012days per year
gas coalelectricity
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Demand
Demand = production by centralised units + import – export
It is included as a lagged variable (- 1) to control for endogeneity
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Competition: measured by the RSI
RSI (per firm) = (capacity of other firms + import capacity ) / demand
For each hour we include the RSI of the marginal firm
.51
1.5
22.
5in
dex
2006 2007 2008 2009 2010 2011hours
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Gas price
Gas price = TTF day-ahead price
It is included as a lagged variable (- 1) to control for endogeneity
010
2030
4050
Eur
o/M
Wh
2006 2007 2008 2009 2010 2011hours
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Temperature of river water
The threshold is 23 degrees: above this temperature plants have to shut down
This is included in the model as “number of degrees above 23”
0.0
5.0
10.0
15.0
20.0
25.0
degr
ees
Cel
cius
2006 2007 2008 2009 2010 2011days
River temperature
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Wind speed and day light
Wind speed is transformed in an indicator for the supply of wind energy on the basis of technical characteristics of wind generators
Day light is expressed in number of minutes per day
05
1015
met
er/s
econ
d
2006 2007 2008 2009 2010days
Wind speed
020
040
060
080
010
00m
inut
es
2006 2007 2008 2009 2010 2011days
Day light
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Data: correlation matrix
APX Demand(-1)
RSI Gas price(-1)
River temp
Wind-NL Wind-GER
Day light
APX 1.00
Demand(-1)
.21 1.00
RSI -.40 -.44 1.00
Gas price(-1)
.69 -.05 .04 1.00
River temp .10 -.04 .03 .03 1.00
Wind-NL -.13 -.002 .06 -.004 -.10 1.00
Wind-GER -.18 -.006 .07 -.03 -.10 .78 1.00
Day light -.18 -.45 .27 -.14 .17 -.13 -.17 1.00
Note: all variables are measures in logs (except River temp)
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Results Explanatory variables
2006 2007 2008 2009 2010 2011
Log(demand(-1)) .54***(.10)
.20*(.11)
.16**(.07)
.26*** (.06)
.26***(.05)
.14***(.03)
Log(RSI) -.60***(.09)
-.64***(.11)
-.17***(.06)
-.24***(.04)
-.26***(.03)
-.14***(.02)
Log(gas price(-1)) .31***(.07)
.33***(.11)
.38***(.12)
.36***(.07)
.38***(.09)
.60***(.07)
River temperature restriction
.04(.04)
. .05(.19)
.05(.05)
.03(.04)
.
Log(Wind-NL) .01(.008)
-.003(.006)
-.02***(.008)
-.005(.007)
-.008*(.004)
-.006(.004)
Log(Wind-GER) -.05***(.01)
-.05***(.008)
-.03***(.008)
-.04***(.009)
-.02***(.005)
-.03***(.005)
Log(Day light) -.61***(.19)
-.13(.21)
.17(.15)
-.06(.12)
-.06(.09)
.06(.07)
Month dummies (1-11)
Day dummies (1-6)
AR(1) .40***(.07)
.62***(.06)
.58***(.07)
.44***(.07)
.50***(.08)
.26***(.07)
AR(2) -.08(.05)
-.21***(.05)
-.06(.05)
-.08(.06)
.01(.06)
.04(.06)
Variance equation
Constant .01***(.002)
.01***(.001)
.01***(.001)
.01***(.001)
.004***(.0005)
.002***(.0003)
Residual(-1)2 .96***(.17)
.86***(.16)
.60***(.16)
.25***(.10)
.40***(.11)
.61***(.14)
Adjusted R2 .75 .82 .76 .83 .83 .76
F stat. ARCH LM .88 .14 .57 .96 .98 .73
Nobservations 356 357 366 364 365 365
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• The electricity price has become more related to the price of gas
• The merit order has become flatter as changes in demand have a lower impact on the price
• The electricity markets seems to have become more competitive as the influence of pivotal players has reduced
• In spite of the increase in wind and solar capacity, the climate factors have less effect on the electricity price
Conclusions