Impacts of subsidized renewable electricity generation on spot market prices in germany: evidence from a garch model with panel data

Authors

Thao Pham, Killian Lemoine

Abstract

Electricity generated by renewable energy sources creates a downward pressure on wholesale prices through – the so-called “merit order effect”. This effect tends to lower average power prices and average market revenue that renewables producers should have received, making integration costs of renewables very high at large penetration rate. It is therefore crucial to determine the amplitude of this merit order effect particularly in the context of increasing burden of renewable support policies borne by final consumers. Using hourly data for the period 2009-2012 in German electricity wholesale market for GARCH model under panel data framework, we find that wind and solar power generation injected into German electricity network during this period induces a decrease of electricity spot prices and a slight increase of their volatility. The model-based results suggest that the merit-order effect created by renewable production ranges from 3.86 to 8.34 €/MWh which implies to the annual volume of consumers’ surplus from 1.89 to 3.92 billion euros. However this surplus has not been re-distributed equally among different types of electricity consumers.