Independent thesis Advanced level (professional degree), 20 credits / 30 HE credits
Thanks to growing environmental concerns, renewable energies take a higher andhigher share of electricity generating portfolios. In Germany particularly, the installedcapacity of wind and solar plants has increased continuously for the past ten years. Given theprinciple of the merit-order dispatch, a greater use of wind and solar power allows theelectricity spot prices to drop significantly. However, wind and sun are both intermittentresources, and this leaves great room for uncertainties on prices. As a consequence, pricesbecome much more dependent on the weather conditions and show greater volatilities,making hedging much more difficult. At the same time, the mechanism of market coupling inthe Central West Europe (France, Germany, Benelux) goes toward a harmonization of prices.As such, the cross-border interconnections play a decisive role in the electricity pricing.This paper deals with the actual influence of the interconnections between France andGermany on electricity spot prices when renewable energies are added to the energy mix. Amodel of a French-German market is made in order to see the impact of an increasingpenetration of renewable energies on spot prices. The wind and solar generations aremodelled using artificial neural networks, ANN. Multiple linear regression is employed tomodel the French and German loads. The cross-border interconnections are modelled basedon the capacity allocations published by RTE (the national French grid operator) and finallythe French and German prices are modelled with a GARCH process to study the volatilities.The study is made for three different scenarios: the reference scenario, with a penetration ofrenewable energies as seen in 2012, a 2020 scenario, with a penetration of renewable energiesas predicted in 2012, and a 2020 scenario with increased interconnection capacities betweenFrance and Germany.Running the models shows that a higher penetration of renewable energies lowers spotprices in average, but introduces price spikes that did not exist beforehand. On short periodsof observation, the volatility seems to decrease, but on longer periods, the spikes increase thevolatility. Also, increasing the interconnection capacities does make the prices converge, butto a certain extent only.Finding fitting hedging strategies becomes more delicate when prices vary with suchuncertainty. The study could be more developed (by extending it to the whole Europeancontinent) in order to get a more accurate vision of how energy markets will look like in a fewyears. However, it must be understood that the future scenarios depend on many variablefactors, and no mathematical model is able to capture all those factors accurately.