Germany´s energy transition and its effect on European electricity spot markets

Mrs Melanie Houllier, Cass Business School, City University London

This paper empirically examines the economic impact of electricity generated by renewable energy sources (RES-E) in Germany on European electricity spot markets by employing a MGARCH (multivariate generalized autoregressive conditional heteroscedasticity) model with constant and time-varying correlations for daily data.

Germany´s so called Energiewende (energy transition) of the summer 2011 induced a process that will shut down all its nuclear power stations by 2022 while at the same time ambitious medium and long term targets for RES-E and the reduction of greenhouse gas are being pursued. The German government has adopted a concept which is yet unique for a major industrial country. This pioneering transformation project is therefore closely watched in Europe and other parts of the world in terms of its economic viability and challenges presented, as for example the management of highly volatile generation.

The interrelationship of European electricity spot prices for APX-ENDEX (UK and Netherlands), EPEX (Germany, Swiss), OMEL (Spain), Nordpool (Finland, Denmark, Norway) and Powernext (France) with wind as well as solar penetration induced by the German system is studied from November 2009 to May 2011. At the univariate level, there are indications of positive own and cross-market, lagged spill-overs. A significant reduction of electricity spot prices with increasing wind penetration especially for well-connected markets is confirmed. Within the multivariate conditional correlation analysis positive time-varying correlations between spot markets are present for those markets with substantial shares of interconnector capacity. A negative association between spot prices and wind penetration induced by the Germany´s RES-E is also evident.


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