EURO 2024 Copenhagen
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2679. Price formation and intersectoral distributional effects in a fully decarbonized European electricity market

Invited abstract in session MC-9: New Market Designs & Models for 100% Renewable Power Systems, stream Energy Markets.

Monday, 12:30-14:00
Room: 10 (building: 116)

Authors (first author is the speaker)

1. Silke Johanndeiter
Ruhr-Universität Bochum
2. Niina Helistö
VTT
3. Juha Kiviluoma
VTT Technical Research Centre of Finland
4. Valentin Bertsch
Chair of Energy Systems and Energy Economics, Ruhr-Universität Bochum

Abstract

Traditionally, wholesale electricity prices were driven by fossil power plants' fuel costs. Optimising dispatch in five scenarios of fully decarbonised, sector-coupled European power systems, we show how future electricity prices continue to be driven by fuel prices. In contrast to today’s market, their impact can also result from opportunity costs of cross-sectoral demand-side technologies. Particularly, we find that electrolysers become the main price-setting technology in Europe in the presence of a significant domestic hydrogen demand and abundant low-variable-cost electricity generation. Consequently, future electricity prices highly depend on these uncertain parameters. While flexible electricity consumption is able to adapt to varying price levels, investors in solar and wind power are similarly exposed to price risks as inflexible electricity consumers. Therefore, they could mutually benefit from price-mitigating instruments, such as Contracts for Difference. In the hydrogen sector, producers and consumers do not share such a common interest as hydrogen consumers’ final energy consumption costs are highly uncertain, but electrolysers robustly recover their investment costs across all scenarios and countries.

This work has received funding from the European Union’s Horizon 2020 research and innovation program under grant agreement no. 864276.

Keywords

Status: accepted

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