Module Description
This module explores the mechanisms that determine wholesale electricity prices and the key economic forces shaping electricity markets during the energy transition. The module explains how electricity prices are formed in liberalized markets and how major drivers, such as renewable energy penetration, natural gas prices, and carbon pricing policies, affect market outcomes. Learners will examine the interaction between supply, demand, and marginal generation technologies, gaining an understanding of how market signals influence investment, system operation, and the integration of renewable energy technologies across the region.
The purpose of this module is to provide learners with a practical and analytical understanding of electricity market price formation and the economic dynamics associated with decarbonization policies. The module first introduces the fundamental mechanisms of wholesale electricity price formation. It examines how increasing shares of renewable energy influence price levels and volatility, including the concept of renewable profitability limits and price cannibalization. It then investigates the relationship between natural gas prices and electricity prices, highlighting the role of gas-fired power plants as marginal price setters in many European electricity markets. Finally, the module analyzes the impact of the European Union Emissions Trading System (EU ETS) on electricity markets, demonstrating how carbon pricing reshapes generation costs, influences dispatch decisions, and incentivizes decarbonization.
Learning Outcomes
Participants will be able to:
- Describe the mechanisms of wholesale electricity price formation and explain how renewable energy integration affects market prices and profitability.
- Learn how to apply electricity market simulators to visualize market profitability scenarios and analyze the risks associated with renewable price cannibalization.
- Evaluate renewable deployment scenarios, including rooftop renewable capacity, under current market conditions and assess the impact of technological innovation on wholesale electricity prices.
- Learn how natural gas prices influence electricity price formation in liberalized electricity markets and interpret the role of gas-fired power plants as marginal price setters.
- Analyze real-world policy interventions, such as the Spanish natural gas subsidy implemented in 2022, and assess their effects on electricity market outcomes.
- Explain the role of the EU Emissions Trading System (ETS) in electricity markets and evaluate its decarbonization incentives and implications for the phase-out of coal-fired power plants.
- Analyze how fuel markets, carbon pricing policies, and renewable energy deployment interact to shape electricity market dynamics during the energy transition.
