High Taxes on Cloudy Days: Dynamic State-Induced Price Components in Power Markets

FCN Working Paper No. 18/2017

43 Pages Posted: 28 Mar 2018 Last revised: 26 May 2020

See all articles by Leonard Göke

Leonard Göke

RWTH Aachen University

Reinhard Madlener

RWTH Aachen University

Date Written: December 1, 2017

Abstract

In most European countries, taxes and levies, the state-induced components of electricity prices, constitute the major share of electricity prices for consumers and are charged at a fixed rate. This study analyzes whether switching state-induced price components to time varying rates can support the integration of variable renewables (VRE) and, thus, help to efficiently achieve the overarching goal of decarbonizing the energy system. Based on game theory and linear programming, we introduce a novel simulation model of the power market. For a quantitative case study, the model is parametrized to represent a German energy system that meets the political objective to increase the share of renewables (RE) in power generation to 80% in 2050. We find that dynamization supports the integration of VRE into the energy system. Whether dynamization is an efficient instrument to promote decarbonization as well is highly dependent on the policy framework in place.

Keywords: Dynamization, Climate policy, Variable renewables, Integration costs, Welfare analysis, Energy market model

JEL Classification: C61, C63, C70, Q42, Q48

Suggested Citation

Göke, Leonard and Madlener, Reinhard, High Taxes on Cloudy Days: Dynamic State-Induced Price Components in Power Markets (December 1, 2017). FCN Working Paper No. 18/2017, Available at SSRN: https://ssrn.com/abstract=3147793 or http://dx.doi.org/10.2139/ssrn.3147793

Leonard Göke

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

Reinhard Madlener (Contact Author)

RWTH Aachen University ( email )

School of Business and Economics / E.ON ERC
Mathieustraße 10
Aachen, 52074
Germany
+49 241 80 49 820 (Phone)
+49 241 80 49 829 (Fax)

HOME PAGE: http://www.eonerc.rwth-aachen.de/fcn

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