Template-Type: ReDIF-Article 1.0
Author-Name:  Lion Hirth
Title:  What caused the drop in European electricity prices? 
A factor decomposition analysis
Classification-JEL: F0
Volume:  Volume 39
Issue:  Number 1
Year:  2018
Abstract:  European wholesale electricity prices have dropped by nearly two thirds since their all-time high around 2008. Different factors have been blamed, or praised, for having caused the price slump: the expansion of renewable energy; the near-collapse of the European emissions trading scheme; over-optimistic power plant investments; a decline in final electricity consumption; and cheap coal and natural gas. This ex-post study of European electricity markets from 2008 to 2015 uses a fundamental power market model to quantify their individual contributions on day-ahead prices. The two countries we study in detail, Germany and Sweden, differ significantly: fuel and CO2 prices were important price drivers in Germany, but in Sweden it was electricity demand. This difference is explained by the nature of the hydro-dominate Nordic electricity system. In both countries, however, the single largest factor depressing prices was the expansion of renewable energy. At the same time, Germany's nuclear phase-out had an upward effect on prices. If one defines the Energiewende as the combination of these two policies, its net effect on power prices was negligible.
Handle: RePEc:aen:journl:ej39-1-Hirth
File-URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=3031
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