Assessment of the supply and demand function of hydropower energy industry: Fresh empirical evidence from the EU region

Abstract

The hydropower industry is a crucial catalyst for improving the National Renewable Energy Action Plans (NREAPs) and mitigating greenhouse gas (GHG) emissions in line with the Renewable Energy Directive of the European Union. Hydropower has been described as one of the most scalable electricity generations, enabling the incorporation of variable production for wind and solar energy systems. Nonetheless, despite ensuring that hydropower production securely matches demand in the real-time market, uncertainty about investment cost and concession rights continue to impede the achievement of the goal. The study used the supply and demand functions to analyse the market hydropower energy industry in the EU from 1990-2018. The research employed two-stage least square (2SLS) and autoregressive integrated moving average (ARIMA) models for the analyses. The outcomes of the supply side indicated that an increase in input resource (precipitation) and hydropower price are essential factors influencing the growth in hydropower supply in the EU region. By contrast, the result reveals that a rise in input cost discourages more hydropower energy production in the EU. As for the demand side, statistical findings have shown that income is directly associated with the demand for hydropower. Whereas an increase in the price of hydropower energy causes reductions in demand. More importantly, we find solar energy to be a substitute for hydropower in the EU region. The results of the forecasted hydropower market demonstrate that supply would be enough to cater to hydropower consumption in the European Union region until 2030. A typical pumped-hydro for supply-push is needed for managing prices during off and peak load situations. There is also a need to streamline the variable cost of topology and geography when constructing a Dam. This study recommends that the EU expand and make hydropower transmission from the grid a national project to be easily accessible for consumption.