IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-04039757.html
   My bibliography  Save this paper

The role of electricity flows and renewable electricity production in the behaviour of electricity prices in Spain

Author

Listed:
  • Daniela Pereira Macedo

    (Universidade da Beira Interior)

  • António Cardoso Marques

    (Universidade da Beira Interior)

  • Olivier Damette

    (BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

Electricity markets are becoming increasingly interconnected, in part, to deal with unpredictability and imbalances in electricity prices. This paper assesses how electricity flows and generation from wind and solar photovoltaic (PV) power impact the volatility and mean of day-ahead electricity prices in Spain. It finds there is a merit order effect from wind and solar PV power at most times of the day, which varies in magnitude for each of the 24 h. Electricity production from wind power is also found to play a clear role in increasing price volatility at all hours. Electricity inflow is shown to decrease both the mean and volatility of the electricity prices. The volatility of electricity prices is revealed to be highly persistent, and thus prone to large transmission shocks. This volatility is also susceptible to new shocks, which may indicate a tendency by market participants to overreact to unexpected shocks in electricity prices, possibly due to the relatively small size of the Iberian electricity market.

Suggested Citation

  • Daniela Pereira Macedo & António Cardoso Marques & Olivier Damette, 2022. "The role of electricity flows and renewable electricity production in the behaviour of electricity prices in Spain," Post-Print hal-04039757, HAL.
    • Handle: RePEc:hal:journl:hal-04039757
    DOI: 10.1016/j.eap.2022.10.001
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cyril Martin de Lagarde & Frédéric Lantz, 2018. "How renewable production depresses electricity prices: Evidence from the German market," Post-Print hal-01985024, HAL.
    2. Brancucci Martinez-Anido, Carlo & Brinkman, Greg & Hodge, Bri-Mathias, 2016. "The impact of wind power on electricity prices," Renewable Energy, Elsevier, vol. 94(C), pages 474-487.
    3. Würzburg, Klaas & Labandeira, Xavier & Linares, Pedro, 2013. "Renewable generation and electricity prices: Taking stock and new evidence for Germany and Austria," Energy Economics, Elsevier, vol. 40(S1), pages 159-171.
    4. Fogelberg, Sara & Lazarczyk, Ewa, 2017. "Wind power volatility and its impact on production failures in the Nordic electricity market," Renewable Energy, Elsevier, vol. 105(C), pages 96-105.
    5. João Pedro Pereira & Vasco Pesquita & Paulo M. M. Rodrigues & António Rua, 2019. "Market integration and the persistence of electricity prices," Empirical Economics, Springer, vol. 57(5), pages 1495-1514, November.
    6. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    7. Ioannidis, Filippos & Kosmidou, Kyriaki & Savva, Christos & Theodossiou, Panayiotis, 2021. "Electricity pricing using a periodic GARCH model with conditional skewness and kurtosis components," Energy Economics, Elsevier, vol. 95(C).
    8. Ketterer, Janina C., 2014. "The impact of wind power generation on the electricity price in Germany," Energy Economics, Elsevier, vol. 44(C), pages 270-280.
    9. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    10. Benhmad, François & Percebois, Jacques, 2018. "Photovoltaic and wind power feed-in impact on electricity prices: The case of Germany," Energy Policy, Elsevier, vol. 119(C), pages 317-326.
    11. Karel Janda & Michaela Koscova, 2018. "Photovoltaics and the Slovak Electricity Market," Working Papers IES 2018/02, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2018.
    12. Figueiredo, Nuno Carvalho & Silva, Patrícia Pereira da, 2019. "The “Merit-order effect” of wind and solar power: Volatility and determinants," Renewable and Sustainable Energy Reviews, Elsevier, vol. 102(C), pages 54-62.
    13. Papaioannou, George P. & Dikaiakos, Christos & Dagoumas, Athanasios S. & Dramountanis, Anargyros & Papaioannou, Panagiotis G., 2018. "Detecting the impact of fundamentals and regulatory reforms on the Greek wholesale electricity market using a SARMAX/GARCH model," Energy, Elsevier, vol. 142(C), pages 1083-1103.
    14. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    15. Petra Lunackova & Jan Prusa & Karel Janda, 2017. "The merit order effect of Czech renewable energy," CAMA Working Papers 2017-17, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    16. MacIver, Callum & Bukhsh, Waqquas & Bell, Keith R.W., 2021. "The impact of interconnectors on the GB electricity sector and European carbon emissions," Energy Policy, Elsevier, vol. 151(C).
    17. Macedo, Daniela Pereira & Marques, António Cardoso & Damette, Olivier, 2020. "The impact of the integration of renewable energy sources in the electricity price formation: is the Merit-Order Effect occurring in Portugal?," Utilities Policy, Elsevier, vol. 66(C).
    18. Maciejowska, Katarzyna, 2020. "Assessing the impact of renewable energy sources on the electricity price level and variability – A quantile regression approach," Energy Economics, Elsevier, vol. 85(C).
    19. Zipp, Alexander, 2017. "The marketability of variable renewable energy in liberalized electricity markets – An empirical analysis," Renewable Energy, Elsevier, vol. 113(C), pages 1111-1121.
    20. Djørup, Søren & Thellufsen, Jakob Zinck & Sorknæs, Peter, 2018. "The electricity market in a renewable energy system," Energy, Elsevier, vol. 162(C), pages 148-157.
    21. Sapio, Alessandro, 2019. "Greener, more integrated, and less volatile? A quantile regression analysis of Italian wholesale electricity prices," Energy Policy, Elsevier, vol. 126(C), pages 452-469.
    22. Mays, Jacob, 2021. "Missing incentives for flexibility in wholesale electricity markets," Energy Policy, Elsevier, vol. 149(C).
    23. Martin de Lagarde, Cyril & Lantz, Frédéric, 2018. "How renewable production depresses electricity prices: Evidence from the German market," Energy Policy, Elsevier, vol. 117(C), pages 263-277.
    24. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    25. Kyritsis, Evangelos & Andersson, Jonas & Serletis, Apostolos, 2017. "Electricity prices, large-scale renewable integration, and policy implications," Energy Policy, Elsevier, vol. 101(C), pages 550-560.
    26. Rintamäki, Tuomas & Siddiqui, Afzal S. & Salo, Ahti, 2017. "Does renewable energy generation decrease the volatility of electricity prices? An analysis of Denmark and Germany," Energy Economics, Elsevier, vol. 62(C), pages 270-282.
    27. Ringler, Philipp & Keles, Dogan & Fichtner, Wolf, 2017. "How to benefit from a common European electricity market design," Energy Policy, Elsevier, vol. 101(C), pages 629-643.
    28. Keles, Dogan & Dehler-Holland, Joris & Densing, Martin & Panos, Evangelos & Hack, Felix, 2020. "Cross-border effects in interconnected electricity markets - an analysis of the Swiss electricity prices," Energy Economics, Elsevier, vol. 90(C).
    29. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    30. Karel Janda, 2018. "Slovak electricity market and the merit order effect of photovoltaics," CAMA Working Papers 2018-22, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    31. Luňáčková, Petra & Průša, Jan & Janda, Karel, 2017. "The merit order effect of Czech photovoltaic plants," Energy Policy, Elsevier, vol. 106(C), pages 138-147.
    32. François Benhmad & Jacques Percebois, 2018. "Photovoltaic and wind power feed-in impact on electricity prices: The case of Germany," Post-Print hal-01830537, HAL.
    33. Kolb, Sebastian & Dillig, Marius & Plankenbühler, Thomas & Karl, Jürgen, 2020. "The impact of renewables on electricity prices in Germany - An update for the years 2014–2018," Renewable and Sustainable Energy Reviews, Elsevier, vol. 134(C).
    34. Gerres, Timo & Chaves Ávila, José Pablo & Martín Martínez, Francisco & Abbad, Michel Rivier & Arín, Rafael Cossent & Sánchez Miralles, Álvaro, 2019. "Rethinking the electricity market design: Remuneration mechanisms to reach high RES shares. Results from a Spanish case study," Energy Policy, Elsevier, vol. 129(C), pages 1320-1330.
    35. Cyril Martin de Lagarde & Frédéric Lantz, 2018. "How renewable production depresses electricity prices: Evidence from the German market," Post-Print hal-01986207, HAL.
    36. Unger, Elizabeth A. & Ulfarsson, Gudmundur F. & Gardarsson, Sigurdur M. & Matthiasson, Thorolfur, 2018. "The effect of wind energy production on cross-border electricity pricing: The case of western Denmark in the Nord Pool market," Economic Analysis and Policy, Elsevier, vol. 58(C), pages 121-130.
    37. Pereira, Diogo Santos & Marques, António Cardoso, 2020. "Could electricity demand contribute to diversifying the mix and mitigating CO2 emissions? A fresh daily analysis of the French electricity system," Energy Policy, Elsevier, vol. 142(C).
    38. Keles, Dogan & Yilmaz, Hasan Ümitcan, 2020. "Decarbonisation through coal phase-out in Germany and Europe — Impact on Emissions, electricity prices and power production," Energy Policy, Elsevier, vol. 141(C).
    39. Goop, Joel & Odenberger, Mikael & Johnsson, Filip, 2017. "The effect of high levels of solar generation on congestion in the European electricity transmission grid," Applied Energy, Elsevier, vol. 205(C), pages 1128-1140.
    40. Spodniak, Petr & Ollikka, Kimmo & Honkapuro, Samuli, 2021. "The impact of wind power and electricity demand on the relevance of different short-term electricity markets: The Nordic case," Applied Energy, Elsevier, vol. 283(C).
    41. Gürtler, Marc & Paulsen, Thomas, 2018. "The effect of wind and solar power forecasts on day-ahead and intraday electricity prices in Germany," Energy Economics, Elsevier, vol. 75(C), pages 150-162.
    42. Rai, Alan & Nunn, Oliver, 2020. "On the impact of increasing penetration of variable renewables on electricity spot price extremes in Australia," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 67-86.
    43. Ciarreta, Aitor & Pizarro-Irizar, Cristina & Zarraga, Ainhoa, 2020. "Renewable energy regulation and structural breaks: An empirical analysis of Spanish electricity price volatility," Energy Economics, Elsevier, vol. 88(C).
    44. Woo, C.K. & Moore, J. & Schneiderman, B. & Ho, T. & Olson, A. & Alagappan, L. & Chawla, K. & Toyama, N. & Zarnikau, J., 2016. "Merit-order effects of renewable energy and price divergence in California’s day-ahead and real-time electricity markets," Energy Policy, Elsevier, vol. 92(C), pages 299-312.
    45. Janda, Karel, 2018. "Slovak electricity market and the price merit order effect of photovoltaics," Energy Policy, Elsevier, vol. 122(C), pages 551-562.
    46. Mac Domhnaill, Ciarán & Ryan, Lisa, 2020. "Towards renewable electricity in Europe: Revisiting the determinants of renewable electricity in the European Union," Renewable Energy, Elsevier, vol. 154(C), pages 955-965.
    47. Beyza, Jesus & Gil, Pablo & Masera, Marcelo & Yusta, Jose M., 2020. "Security assessment of cross-border electricity interconnections," Reliability Engineering and System Safety, Elsevier, vol. 201(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Macedo, Daniela Pereira & Marques, António Cardoso & Damette, Olivier, 2021. "The Merit-Order Effect on the Swedish bidding zone with the highest electricity flow in the Elspot market," Energy Economics, Elsevier, vol. 102(C).
    2. Macedo, Daniela Pereira & Marques, António Cardoso & Damette, Olivier, 2020. "The impact of the integration of renewable energy sources in the electricity price formation: is the Merit-Order Effect occurring in Portugal?," Utilities Policy, Elsevier, vol. 66(C).
    3. Kolb, Sebastian & Dillig, Marius & Plankenbühler, Thomas & Karl, Jürgen, 2020. "The impact of renewables on electricity prices in Germany - An update for the years 2014–2018," Renewable and Sustainable Energy Reviews, Elsevier, vol. 134(C).
    4. Huisman, Ronald & Stet, Cristian, 2022. "The dependence of quantile power prices on supply from renewables," Energy Economics, Elsevier, vol. 105(C).
    5. Nibedita, Barsha & Irfan, Mohd, 2022. "Analyzing the asymmetric impacts of renewables on wholesale electricity price: Empirical evidence from the Indian electricity market," Renewable Energy, Elsevier, vol. 194(C), pages 538-551.
    6. Wilkinson, Sam & Maticka, Martin J. & Liu, Yue & John, Michele, 2021. "The duck curve in a drying pond: The impact of rooftop PV on the Western Australian electricity market transition," Utilities Policy, Elsevier, vol. 71(C).
    7. Tselika, Kyriaki, 2022. "The impact of variable renewables on the distribution of hourly electricity prices and their variability: A panel approach," Energy Economics, Elsevier, vol. 113(C).
    8. Maniatis, Georgios I. & Milonas, Nikolaos T., 2022. "The impact of wind and solar power generation on the level and volatility of wholesale electricity prices in Greece," Energy Policy, Elsevier, vol. 170(C).
    9. Samarth Kumar & David Schönheit & Matthew Schmidt & Dominik Möst, 2019. "Parsing the Effects of Wind and Solar Generation on the German Electricity Trade Surplus," Energies, MDPI, vol. 12(18), pages 1-17, September.
    10. Mwampashi, Muthe Mathias & Nikitopoulos, Christina Sklibosios & Rai, Alan & Konstandatos, Otto, 2022. "Large-scale and rooftop solar generation in the NEM: A tale of two renewables strategies," Energy Economics, Elsevier, vol. 115(C).
    11. Saez, Yago & Mochon, Asuncion & Corona, Luis & Isasi, Pedro, 2019. "Integration in the European electricity market: A machine learning-based convergence analysis for the Central Western Europe region," Energy Policy, Elsevier, vol. 132(C), pages 549-566.
    12. Panos, Evangelos & Densing, Martin, 2019. "The future developments of the electricity prices in view of the implementation of the Paris Agreements: Will the current trends prevail, or a reversal is ahead?," Energy Economics, Elsevier, vol. 84(C).
    13. Pereira, Diogo Santos & Marques, António Cardoso, 2020. "How should price-responsive electricity tariffs evolve? An analysis of the German net demand case," Utilities Policy, Elsevier, vol. 66(C).
    14. Peña, Juan Ignacio & Rodríguez, Rosa & Mayoral, Silvia, 2022. "Cannibalization, depredation, and market remuneration of power plants," Energy Policy, Elsevier, vol. 167(C).
    15. Bell, William Paul & Wild, Phillip & Foster, John & Hewson, Michael, 2017. "Revitalising the wind power induced merit order effect to reduce wholesale and retail electricity prices in Australia," Energy Economics, Elsevier, vol. 67(C), pages 224-241.
    16. Mosquera-López, Stephanía & Nursimulu, Anjali, 2019. "Drivers of electricity price dynamics: Comparative analysis of spot and futures markets," Energy Policy, Elsevier, vol. 126(C), pages 76-87.
    17. Abban, Abdul Rashid & Hasan, Mohammad Z., 2021. "Solar energy penetration and volatility transmission to electricity markets—An Australian perspective," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 434-449.
    18. Figueiredo, Nuno Carvalho & Silva, Patrícia Pereira da, 2019. "The “Merit-order effect” of wind and solar power: Volatility and determinants," Renewable and Sustainable Energy Reviews, Elsevier, vol. 102(C), pages 54-62.
    19. Marques, António Cardoso & Fuinhas, José Alberto & Macedo, Daniela Pereira, 2019. "The impact of feed-in and capacity policies on electricity generation from renewable energy sources in Spain," Utilities Policy, Elsevier, vol. 56(C), pages 159-168.
    20. Thomaßen, Georg & Redl, Christian & Bruckner, Thomas, 2022. "Will the energy-only market collapse? On market dynamics in low-carbon electricity systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 164(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-04039757. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.