Thread Reader

Björn Peters

@BjrnPeters3

Sep 23

9 tweets
Twitter

Some have wondered why I suggest that the price for electricity at the power exchange EEX will fall by 50-70% on the day the Germans decide to reinstate all six nuclear power plants, in contrast to the @ifo Institut, who calculated the effect at 4% with three NPP. Here is why. 🧵

First, @Clemens Fuest was mandated to calculate the effect of 4 GW of nuclear power on the merit order (please correct me if I'm wrong). The power market is highly non-linear in its behaviour. 8.4 GW has a substantial higher impact on the merit order than just 4 GW.

Six NPP produce ~60 TWh/a of clean power, mostly replacing gas capacity, where gas is extremely expensive. As soon as 8.4 GW are enough to push out gas from the merit order, power prices will fall to the price of coal power. This will happen in lots of hours per year.

The average price will diminish accordingly, probably far more than 4% with six NPP in operations. But there are two secondary and one tertiary effect.

First, the gas not used for power (up to 150 TWh/a) will be available on the market, thus reducing gas prices as the demand-supply relation easens. This reduces the power price in hours when gas still sets the marginal price.

Second, the gas not used in the power sector might not be subject to carbon emission trading. 150 TWh/a in gas correspond to 60 Mt/a in CO2, which is several percent of the annual cap&trade volume, a highly inelastic market. Carbon prices should go down accordingly.

The tertiary effect of reduced carbon cost is lower marginal cost for coal and gas fired power plants.

I wouldn't like to pretend that it is easy to calculate the price reduction effect of an infinite lifetime extension of our 6 NPP, but probably no-one can do it with precision. My experience in commodity trading and my reasoning above tell me that 4% reduction is far too low.

There is one aspect, though, that is important to consider: Gas, coal and carbon markets are European ones. A relief on prices would help all Europeans. Hence, lifetime extension is not only important on national level but is an act of European solidarity. Germans, go for it.

Björn Peters

@BjrnPeters3

Physicist, economist, energy policy strategist, business builder, author, liberal activist. Always willing to learn.

Follow on Twitter

Missing some tweets in this thread? Or failed to load images or videos? You can try to .