The growth in variable renewable energy (vRES) and the need for flexibility in power
systems go hand in hand. We study how vRES and other factors, namely the price of substitute
fuels, power price volatility, structural breaks, and seasonality impact the hedgeable power
spreads (profit margins) of the main dispatchable flexibility providers in the current power
systems - gas and coal power plants. We particularly focus on power spreads that are hedgeable
in futures markets in three European electricity markets (Germany, UK, Nordic) over the time
period 2009-2016. We find that market participants who use power spreads need to pay
attention to the fundamental supply and demand changes in the underlying markets (electricity,
CO2, and coal/gas). Specifically, we show that the total vRES capacity installed during 2009-2016
is associated with a drop of 3-22% in hedgeable profit margins of coal and especially gas power
generators. While this shows that the expansion of vRES has a significant negative effect on the
hedgeable profitability of dispatchable, flexible power generators, it also suggests that the
overall decline in power spreads is further driven by the price dynamics in the CO2 and fuel
markets during the sample period. We also find significant persistence (and asymmetric effects)
in the power spreads volatility using a univariate TGARCH model