Abstract
Given the perspective of the Swiss energy policy to support investments in renewable energy sources, it becomes highly relevant at this point to understand cross-border effects of imported electricity on the Swiss electricity prices. We found that German (Phelix) and Swiss (Swissix) electricity prices are cointegrated, given that the two markets are interconnected. We examined the cross-border effects of the German market fundamentals on Swissix, taking into account seasonality aspects. In the context of a dynamic fundamental model, we found that there is a continuous adaption process of electricity prices to market fundamentals and that this effect depends on the season of the year and the time of the day. Model results reveal the substitution effect between traditional fuels and renewable energies due to their alternative use in production and the shift in the merit order curve. Results are of great relevance to Swiss policy makers: Switzerland imports lower electricity prices due to the energy transition in Germany. In particular, because of the high infeed of PV (photovoltaic) during peak hours, the spread between Swissix peak and off-peak prices narrowed significantly over time. Incentives for investments in renewable energies in Switzerland as well as subsidies for hydropower should be considered in the light of these insights.
Highlights
In this paper, we identify the fundamental market factors that impact Swiss electricity wholesale prices (Swissix), given the interconnector between the German and Swiss power markets
Results are of great relevance to Swiss policy makers: Switzerland imports lower electricity prices due to the energy transition in Germany
We comment in detail on the salient features of three hourly products, namely hour 4 (3:00 a.m.–4:00 a.m.), hour 13 (12:00 p.m.–1:00 p.m.), and hour 18 (5:00 p.m.–6:00 p.m.) in order to illustrate the main idea of our modeling approach: market fundamentals impact the Swiss electricity prices differently, depending on the steepness of the supply curve and on the demand profile at different trading periods within one day
Summary
We identify the fundamental market factors that impact Swiss electricity wholesale prices (Swissix), given the interconnector between the German and Swiss power markets. Given the perspective of the Swiss energy policy to support investments in new installations of wind and PV (photovoltaic), as well as in flexible storage devices (see, for example, [1] or [2]), an understanding of the fundamental factors that impact Swiss electricity prices becomes highly relevant. Liberalised markets are typically characterized by more market competition, higher economic efficiencies and lower prices. Switzerland reacted in the mid-1990s and started to draft a law called “Electricity Market Law” (German: Elektrizitätsmarktgesetz, EMG), whose purpose was the market liberalisation within six years and the development of a national private-law grid company [4]
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