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The new economics of the power sector

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A lot of strange things have been happening in the European power sector lately, from negative prices, to utilities closing down brand new power plants and, naturally, action in various places  to cut support for renewable energy (done in Spain and even mooted in Germany).

I've long described renewable energy producers as a price takers (i.e., they don't influence market prices in the short term and have to "take" market prices as set by other factors), but we are getting to the point, in a number of places, where the penetration of renewable energy is such that it has a real macroeconomic impact on the prices of electricity, and thus on the way power markets run. There's also been a big political battle brewing, as renewables "subsidies" are targeted by governments at a time of austerity in Europe, egged on by hardly disinterested utilities.

It is worth deconstructing what's been happening.


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