Electricity Prices, River Temperature and Cooling Water Scarcity

In the world of the water-energy nexus he tend to focus our concerns on the quantity of water versus the quality of the water that is needed to effectively operate our power systems.  McDermott and Nilsen (Norwegian School of Economics) point this out in their September 2012 working paper - Electricity Prices, River Temperatures and Cooling Water Scarcity.  Their paper analyses the effect of water scarcity and increased river temperatures on German electricity prices from 2002 to 2009.  Link to the paper.

Below is a table from the paper on four river basins.  From their regression analysis, you can see that the individual river coefficients are all negative and indicative of a higher electricity price when river levels fall.  The bottom line of their research - - electricity prices are significantly affected by both falling river levels and higher river temperatures (which is a combination of decreased thermal efficiency, an increasing heat rate, and environmental regulatory constraints on water withdrawal rates).

	Elbe	Main	Neckar	Rhine
Dep. Var. = Price (€/MWH)
COEFFICIENTS
Base Volume	8.099	8.256	8.081	8.277
Predetermined Variables
1.1 Base Price	0.644	0.633	0.623	0.620
1.7 Base Price	0.158	0.153	0.168	0.140
1.1 Base Volume	-3.738	-3.757	-3.672	-3.7949
1.7 Base Volume	-2.230	-2.330	-2.271	-2.284
River Levels (cm)
Single Series	-0.130	-0.372	-0.511	-0.217
River Temperature (⁰C)
DRiv25 (1-River Temp > 25⁰C)	-0.0246	0.00289	0.00373	-0.0683
River Temp, if>25⁰C	0.208	0.222	0.227	0.210
Brent (90-day MA)	0.131	0.113	0.0755	0.137
TESTS (p-values)
Endogeneity test	0.0000	0.0000	0.0000	0.0000
Instrumental variable test	0.0000	0.0000	0.0000	0.0000
Overidentifying restrictions test	0.0716	0.0555	0.0613	0.0731
Joint significance tests
Month Dummies	0.0000	0.0000	0.0000	0.0000
Year Dummies	0.0000	0.0000	0.0000	0.0000
N	2915	2915	2915	2915