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Driven by the climate conference in Paris in December 2015 countries worldwide are confronted with the question of how to shape their power system and how to establish alternative technologies to reduce harmful CO2 emissions. The German government plans that even before the year 2050, all electricity generated and consumed in Germany should be greenhouse gas neutral [1]. To successfully integrate renewable energies, a future energy system must be able to handle the intermittent nature of renewable energy sources such as wind and solar. One important means to address such electricity production variability is demand-side flexibility. Here, industry plays a major role in responding to variable electricity supply with adequate flexibility. This is where the Kopernikus project SynErgie comes in with more than 80 project partners from academia, industry, governmental, and non-governmental organizations as well as energy suppliers and network operators. The Kopernikus project SynErgie investigates how to best leverage demand-side flexibility in the German industry. The current electricity market design in Germany is not well suited to deal with increasing levels of re- newable energy, and it does not embrace demand-side flexibility. Almost 6 GW of curtailed power in 2019 provide evidence that changes are needed with respect to the rules governing electricity markets. These rules were designed at a time when electricity generation was concentrated on a few large and dispatchable conventional power plants and demand was considered inelastic. The SynErgie Cluster IV investigates how a future-proof electricity market design should be organized. The corresponding Work Package IV.3.1 more specifically deals with analyzing and designing allocation and pricing rules on electricity spot markets. The resulting design must be well suited to accommodate demand-side flexibility and address the intermittent nature of important renewable energy sources. This whitepaper is the result of a fruitful collaboration among the partners involved in SynErgie Cluster IV which include Germany's leading research organizations and practitioners in the field. The collaboration led to an expert workshop in October 2020 with participation from a number of international energy market experts such as Mette Bjørndal (NHH), Endre Bjørndal (NHH), Peter Cramton (University of Maryland and University of Cologne), and Raphael Heffron (University of Dundee). The whitepaper details the key recommendations from this workshop. In particular, the whitepaper recommends a move to a locational, marginal price-based system together with new bidding formats allowing to better express flexibility. We argue in favor of a one-step introduction of locational, marginal prices instead of repeatedly splitting existing zones. Frequent zone splitting involves recurring political debates as well as short- and long-run instabilities affecting the basis for financial con- tracts, for example. Importantly, the definition of stable prize zones is very challenging with increasing levels of distributed and renewable energy sources. The recommendation is the outcome of an intense debate about advantages and downsides of different policy alternatives. However, such a transition to locational, marginal prices is not without challenges, and it is a call to arms for the research community, policymak- ers, and practitioners to develop concepts on how to best facilitate the transition and ensure a reliable and efficient electricity market of the future. We'd like to thank all the project partners and are grateful for the financial support from the Federal Ministry of Education and Research as well as the Project Management Jülich. Hans Ulrich Buhl (Cluster Lead) Martin Bichler (Work Package Lead)

International audience The recent liberalization of the electricity and gas markets has resulted in the growth of energy exchanges and modelling problems. In this paper, we modelize jointly gas and electricity spot prices using a mean-reverting model which fits the correlations structures for the two commodities. The dynamics are based on Ornstein processes with parameterized diffusion coefficients. Moreover, using the empirical distributions of the spot prices, we derive a class of such parameterized diffusions which captures the most salient statistical properties: stationarity, spikes and heavy-tailed distributions. The associated calibration procedure is based on standard and efficient statistical tools. We calibrate the model on French market for electricity and on UK market for gas, and then simulate some trajectories which reproduce well the observed prices behavior. Finally, we illustrate the importance of the correlation structure and of the presence of spikes by measuring the risk on a power plant portfolio.

This paper analyses the volatility of wholesale electricity markets for five markets in Europe. Using GARCH models after filtering outliers, significant asymmetric effects and volatility persistence have been documented. Moreover, empirical evidence is provided on a significant relation between volume and volatility which can be both positive or negative depending on the specific market.

This article presents an empirical study of market power in the British electricity industry. Estimates of price-cost markups are derived using direct measures of marginal cost and several approaches that do not rely on cost data. Since two suppliers facing inelastic demand dominate the industry, most oligopoly models predict prices substantially above marginal costs. All estimates indicate that prices, while higher than marginal costs, are not nearly as high as most theoretical models predict. Regulatory constraints, the threat of entry, and financial contracts between the suppliers and their customers are considered as possible explanations for the observed price levels. (JEL L13, L94)