Electricity Prices, River Temperatures and Cooling Water Scarcity

39 Pages Posted: 10 Oct 2011 Last revised: 25 Nov 2013

See all articles by Grant R. McDermott

Grant R. McDermott

University of Oregon - Department of Economics; Norwegian School of Economics (NHH) - Department of Economics

Øivind Anti Nilsen

Norwegian School of Economics (NHH) - Department of Economics; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

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Date Written: September 22, 2011

Abstract

Thermal-based power stations rely on water for cooling purposes. These water sources may be subject to incidents of scarcity, environmental regulations and competing economic concerns. This paper analyses the effect of water scarcity and increased river temperatures on German electricity prices from 2002 to 2009. Having controlled for demand effects, the results indicate that the electricity price is significantly impacted by both a change in river temperatures and the relative abundance of river water. An implication is that future climate change will affect electricity prices not only through changes in demand, but also via increased water temperatures and scarcity.

Keywords: Thermal-based power, water scarcity

JEL Classification: Q25, Q41, Q5, C3

Suggested Citation

McDermott, Grant R. and Nilsen, Oivind Anti, Electricity Prices, River Temperatures and Cooling Water Scarcity (September 22, 2011). NHH Dept. of Economics Discussion Paper No. 18/2011, Available at SSRN: https://ssrn.com/abstract=1941820 or http://dx.doi.org/10.2139/ssrn.1941820

Grant R. McDermott

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

HOME PAGE: http://www.grantmcdermott.com

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway

Oivind Anti Nilsen (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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