Journal of Energy Markets

Evaluating the effects of changing market parameters and policy implications in the German electricity market

Christian Hendricks and Matthias Ehrhardt


In this paper the authors introduce a joint model for the electricity spot and the emission market in Germany. The model is used to simulate the effects of changing market parameters and policy implications. They propose a structural approach to connect fundamental factors, such as demand, capacity, fuel prices and emission allowances, to the price of electricity. Based on empirical bid behavior of electricity producers in day-ahead auctions they develop a novel CO2 emission rate model. In order to introduce a feedback of CO2 allowances to the actual emission of greenhouse gases, a forward-backward stochastic differential equation is used to deduce a partial differential equation to price emission allowances. The resulting equation will be solved by an alternating direction implicit finite difference scheme.


Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

If you already have an account, please sign in here.

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here