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Competition in Electricity Generation in Germany and Neighboring Countries from a System Dynamics Perspective

Outlook Until 2012

Series:

Christoph Grobbel

The European electricity industry is currently facing the transition from a monopolistic to a free market situation. One main question for incumbents as well as for new entrants is the long-term price evolution. As cost curves are not a good indicator for future price levels, the long-term price and capacity evolution have been analyzed with a system dynamics model.
The model simulates the development of wholesale electricity prices and generation capacity in weekly steps for the next fifteen years under various scenarios. The market model is based on regional pool markets similar to the English or Nordic power pool. Transmission capacities as well as transmission costs are taken into consideration.
Contents: Results of the simulation show that electricity prices might fall from their current level of above seven Pf/kWh to around five Pf/kWh before they will finally recover at the full cost level of CCGT - A counter intuitive finding is that the profitability of CCGT power plants does not decrease when gas prices increase, because the price setting plants are usually gas fired, forcing the electricity prices up by an even higher percentage - Without much additional work, the model permits to determine a company's optimal generation strategy.