Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Abstract: We examine the relationship between German wind and solar electricity and French spot price volatility. Using hourly data, we find that French imports from Germany driven by German wind and solar electricity sometimes decrease, sometimes increase the volatility of French spot prices. These two opposing effects depend on the shape of the French supply function and on the French demand. We, therefore, estimate different coefficients for imports depending on different demand levels. We acknowledge the endogeneity problem in identifying these effects and employ instrumental variable techniques to circumvent this problem. Our results show the urgent need for further coordination of national energy policies in order to reduce the potential for negative spill over effects of nationally driven energy policies in neighbouring countries as European electricity markets are becoming more integrated.

Keywords: Wind and Solar Electricity, Price Volatility, Market Integration, Electricity Markets

JEL-codes: F15; L81; L98; Q42; Q48 January 2018

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