Home/Method notes/The marginal-fuel model

Method note · estimate

The marginal-fuel model

What it measures

A model of when a gas-fired plant sets the wholesale price, comparing its modelled running cost against the observed price.

Inputs

  • The day-ahead price on the canonical hourly grid, for the DE-LU bidding zone (Germany and Luxembourg, which share one wholesale price)
  • The European gas price from the World Bank's monthly commodity price table (the Pink Sheet), converted to euros with the European Central Bank's monthly exchange rate
  • The price of an EU permit to emit a tonne of CO₂ (a carbon allowance), curated, dated and stated on the view

Method and weighting

The short-run marginal cost of a gas-fired plant, the cost of generating one more unit of electricity from gas right now, is the fuel cost divided by the plant's efficiency, plus the carbon allowance price multiplied by the plant's carbon emissions per unit of output.

Each hour of the wholesale price is classed against that cost. A price at or below zero, or below a small share of the modelled cost, reads as renewables setting it. A price at or above a larger share of the modelled cost reads as gas setting it; both shares are fixed settings of the model. A price in between reads as another, cheaper thermal plant setting it.

The model reads which fuel is likely setting the price from the relationship between the modelled cost and the observed price.

Window

The rolling 12 months to the last complete day for the price, refreshed on the 1st and 15th of each month; the gas price is monthly and the allowance price is a dated curated figure. Data last refreshed on .

Known limits

  • This is a model: it infers something nobody observes directly, which plant sets the price in a given hour.
  • The plant's efficiency, its carbon emissions per unit of output and the allowance price are each a single value stated on the view; the real fleet of plants spans a range on each.

Used on

Sources: ENTSO-E, World Bank, European Central Bank. Each is described on the Data sources page.