Cross Border Impacts of Renewable Energy Sources in Central Western Europe

Abstract

Alongside the remarkable deployment of renewable energy sources for electricity in Europe the power markets are growing together. An analysis focusing not only on domestic but also on cross border impacts is therefore of interest. We consider the interaction between the electricity markets of France, Germany, the Netherlands and Belgium (Central Western Europe region or CWE) which are technically and economically closely connected. More precisely, we study the international impacts of renewable energy sources for electricity and quantify possible spillover effects on prices. We choose two different approaches to tackle the question: A toy model infers causal relationships and an econometric time series analysis with high frequency data quantifies the effects of interest. With rising renewable electricity production from wind and solar in different market areas, challenges in analysis arising from multicollinearities become more pronounced and are addressed. We find that renewable energy sources in one region indeed have a depressing impact on prices of bordering bidding zones even in countries which do not have direct physical interconnections. This effect is quantified in monetary units for the years between 2012 and 2015. The influence of German renewable energy sources over one year on the Netherlands, Belgium and France is of the same order of magnitude than the influence of the corresponding domestic renewables on the respective domestic markets.