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 * Electricity Prices, River Temperatures and Cooling Water Scarcity

September 2012


IZA DP NO. 6842: ELECTRICITY PRICES, RIVER TEMPERATURES AND COOLING WATER
SCARCITY

Grant R. McDermott, Øivind Anti Nilsen

revised version published in: Land Economics, 2014 90 (1), 131-148.

Thermal-based power stations rely on water for cooling purposes. These water
sources may be subject to incidents of scarcity, environmental regulations and
competing economic concerns. This paper analyses the effect of water scarcity
and increased river temperatures on German electricity prices from 2002 to 2009.
Having controlled for demand effects, the results indicate that the electricity
price is significantly impacted by both a change in river temperatures and the
relative abundance of river water. An implication is that future climate change
will affect electricity prices not only through changes in demand, but also via
increased water temperatures and scarcity.

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KEYWORDS

 * water scarcity
 * thermal-based power
 * water-energy nexus


JEL CODES

 * Q25
 * Q41
 * Q5
 * C3

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