Negative Price Spikes at Power Markets: The Role of Energy Policy

29 Pages Posted: 25 Nov 2016

See all articles by Andreas Gerster

Andreas Gerster

RWI – Leibniz Institute for Economic Research

Date Written: August 16, 2016


In Germany, substantial drops in wholesale power prices have become a regular phenomenon. While such price drops have far-reaching implications for the functioning of the power market, their underlying determinants remain poorly understood. To fill this gap, we propose a Markov regime-switching model to investigate low-price events at the European Power Exchange. Our analysis focuses on the role of energy policies that promote renewable energies and have led to significant reductions of nuclear capacities after the Fukushima accident. We find that high electricity infeed from renewable sources increases negative price spike probabilities, while the decommissioning of nuclear plants under the Nuclear Moratorium had an opposing effect. Simulations of market outcomes under different energy policies indicate that reaching ambitious renewable energy targets increases the frequency of low-price events and compromises the financial viability of conventional generation units, while a nuclear phase-out or an increase in storage capacities mitigates these effects.

Keywords: Renewable energies, nuclear phase-out, day-ahead prices, regime-switching models, price spikes

JEL Classification: C32, L94, Q40, Q41

Suggested Citation

Gerster, Andreas, Negative Price Spikes at Power Markets: The Role of Energy Policy (August 16, 2016). USAEE Working Paper No. 16-285, Available at SSRN: or

Andreas Gerster (Contact Author)

RWI – Leibniz Institute for Economic Research ( email )

Hohenzollernstr. 1-3
Essen, 45128

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