Zakeri, Behnam;
Staffell, Iain;
Dodds, Paul E;
Grubb, Michael;
Ekins, Paul;
Jääskeläinen, Jaakko;
Cross, Samuel;
... Castagneto Gissey, Giorgio; + view all
(2023)
The role of natural gas in setting electricity prices in Europe.
Energy Reports
, 10
pp. 2778-2792.
10.1016/j.egyr.2023.09.069.
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Abstract
The EU energy and climate policy revolves around enhancing energy security and affordability, while reducing the environmental impacts of energy use. The European energy transition has been at the centre of debate following the post-pandemic surge in power prices in 2021 and the energy crisis following the 2022 Russia-Ukraine war. Understanding the extent to which electricity prices depend on fossil fuel prices (specifically natural gas) is key to guiding the future of energy policy in Europe. To this end, we quantify the role of fossil-fuelled vs. low-carbon electricity generation in setting wholesale electricity prices in each EU-27 country plus Great Britain (GB) and Norway during 2015-2021. We apply econometric analysis and use sub/hourly power system data to estimate the marginal share of each electricity generation type. The results show that fossil fuel-based power plants set electricity prices in Europe at approximately 58% of the time (natural gas 39%) while generating only 34% of electricity (natural gas 18%) a year. The energy transition has made natural gas the main electricity price setter in Europe, with gas determining electricity prices for more than 80% of the hours in 2021 in several countries such as Belgium, GB, Greece, Italy, and the Netherlands. Hence, Europe’s electricity markets are highly exposed to the geopolitical risk of gas supply and natural gas price volatility, and the economic risk of currency exchange.
| Type: | Article |
|---|---|
| Title: | The role of natural gas in setting electricity prices in Europe |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1016/j.egyr.2023.09.069 |
| Publisher version: | https://doi.org/10.1016/j.egyr.2023.09.069 |
| Language: | English |
| Additional information: | © 2023 The Author(s). Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/). |
| Keywords: | Energy market coupling, Energy system models, Solar photovoltaic (PV) and wind energy, Variable renewable energy, Liquified natural gas (LNG), Day-ahead power market analysis, International energy trade, Cross-border power transmission |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > Bartlett School Env, Energy and Resources |
| URI: | https://discovery-pp.ucl.ac.uk/id/eprint/10178434 |
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