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Self-Reinforcing Electricity Price Dynamics under the Variable Market Premium Scheme

Department of Energy Systems Analysis, Institute of Engineering Thermodynamics, German Aerospace Center, Curiestrasse 4, 70563 Stuttgart, Germany
*
Author to whom correspondence should be addressed.
All authors contributed equally.
Current affiliation: Wattsight AS, 4841 Arendal, Norway.
Energies 2020, 13(20), 5350; https://doi.org/10.3390/en13205350
Received: 31 July 2020 / Revised: 6 October 2020 / Accepted: 9 October 2020 / Published: 14 October 2020
(This article belongs to the Special Issue Uncertainties and Risk Management in Competitive Energy Markets)
We report a potential self-reinforcing design flaw in the variable market premium scheme that occurs if variable renewable energy power plants receiving a premium become price-setting in the market. A high share of renewable energy is a goal of many countries on their transformation path to a sustainable future. Accordingly, policies like feed-in tariffs have been in place for many years in many countries to support investment. To foster market alignment, variable market premia have been introduced in at least 12 European countries and a further dozen additional countries world-wide. We demonstrate both with a mathematical model and different scenarios of an agent-based simulation that the combination of variable premia and a high share of hours in which renewables are price-setting may lead to a self-reinforcing downward spiral of prices if unchecked. This is caused by the market premium opening up the bidding space towards negative prices. We discuss possible objections and countermeasures and evaluate the severity of this market design flaw. View Full-Text
Keywords: energy policy; market premia; price dynamics; renewable energy; agent-based simulation energy policy; market premia; price dynamics; renewable energy; agent-based simulation
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MDPI and ACS Style

Frey, U.J.; Klein, M.; Nienhaus, K.; Schimeczek, C. Self-Reinforcing Electricity Price Dynamics under the Variable Market Premium Scheme. Energies 2020, 13, 5350. https://doi.org/10.3390/en13205350

AMA Style

Frey UJ, Klein M, Nienhaus K, Schimeczek C. Self-Reinforcing Electricity Price Dynamics under the Variable Market Premium Scheme. Energies. 2020; 13(20):5350. https://doi.org/10.3390/en13205350

Chicago/Turabian Style

Frey, Ulrich J., Martin Klein, Kristina Nienhaus, and Christoph Schimeczek. 2020. "Self-Reinforcing Electricity Price Dynamics under the Variable Market Premium Scheme" Energies 13, no. 20: 5350. https://doi.org/10.3390/en13205350

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