A note on hydropower as a marginal price setter for Spain's electricity market in 2021¿2022 Articles uri icon

publication date

  • April 2024

volume

  • 87

International Standard Serial Number (ISSN)

  • 0957-1787

Electronic International Standard Serial Number (EISSN)

  • 1878-4356

abstract

  • From January 2021 to March 2022, wholesale Spanish spot electricity prices reached a record high of €700/MWh. Surprisingly, hydropower set the marginal market price for 52% of the hours in 2021 and 43% in the first quarter of 2022. Combined-cycle gas-fired units, which typically determine the marginal price, were marginal in only 16% and 21% of the hours in 2021 and 2022, respectively. Hydropower set prices between 3% and 12% higher than an estimate of their opportunity cost, and they were responsible for charging 69% of the prices above €500/MWh. The empirical evidence suggests that 2021 was an unusual year compared to 2018 and 2019 because the role played by hydropower as a marginal price setter was relatively more prominent.

keywords

  • hydropower; marginal pricing; market remuneration; opportunity cost; renewable energy