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What happens when it's Windy in Denmark? An Empirical Analysis of Wind Power on Price Volatility in the Nordic Electricity Market

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  • Mauritzen, Johannes

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

This paper attempts to empirically test the effect that wind power production in Denmark has on volatility of the nordpool wholesale electricity prices. The main result is that wind power tends to significantly reduce intraday volatility but increases volatility over larger time windows. The negative elasticity for intraday volatility is likely due to a larger-in-magnitude price effect of wind power on peak hours then off-peak hours. I suggest that this in turn is due to a steeper supply schedule at peakloads. The positive elasticities in the wider time windows can be intuitively explained by the greater variability of the supply when large amounts of wind power are present. These finding have ramifications for investment in power generation, balancing as well as transmission capacity.

Suggested Citation

  • Mauritzen, Johannes, 2010. "What happens when it's Windy in Denmark? An Empirical Analysis of Wind Power on Price Volatility in the Nordic Electricity Market," Discussion Papers 2010/18, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2010_018
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    File URL: http://hdl.handle.net/11250/164008
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    References listed on IDEAS

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    1. Nils-Henrik M. von der Fehr, Eirik S. Amundsen and Lars Bergman, 2005. "The Nordic Market: Signs of Stress?," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 71-98.
    2. Rafal Weron & Adam Misiorek, 2005. "Modeling and forecasting electricity loads: A comparison," Econometrics 0502004, University Library of Munich, Germany.
    3. Olsen, Ole Jess & Amundsen, Eirik S. & Donslund, Bjarne, 2006. "How to play the game as the bridge between two European power markets--the case of Western Denmark," Energy Policy, Elsevier, vol. 34(17), pages 3293-3304, November.
    4. Hjalmarsson, Erik, 2000. "Nord Pool: A Power Market Without Market Power," Working Papers in Economics 28, University of Gothenburg, Department of Economics.
    5. Rafal Weron, 2006. "Modeling and Forecasting Electricity Loads and Prices: A Statistical Approach," HSC Books, Hugo Steinhaus Center, Wroclaw University of Technology, number hsbook0601.
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    Cited by:

    1. Figueiredo, Nuno Carvalho & Silva, Patrícia Pereira da & Cerqueira, Pedro A., 2015. "Evaluating the market splitting determinants: evidence from the Iberian spot electricity prices," Energy Policy, Elsevier, vol. 85(C), pages 218-234.
    2. Mwampashi, Muthe Mathias & Nikitopoulos, Christina Sklibosios & Konstandatos, Otto & Rai, Alan, 2021. "Wind generation and the dynamics of electricity prices in Australia," Energy Economics, Elsevier, vol. 103(C).
    3. Hosius, Emil & Seebaß, Johann V. & Wacker, Benjamin & Schlüter, Jan Chr., 2023. "The impact of offshore wind energy on Northern European wholesale electricity prices," Applied Energy, Elsevier, vol. 341(C).
    4. Nikola Krečar & Andrej F. Gubina, 2020. "Risk mitigation in the electricity market driven by new renewable energy sources," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 9(1), January.
    5. 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.
    6. Johannes Mauritzen, 2013. "Dead Battery? Wind Power, the Spot Market, and Hydropower Interaction in the Nordic Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    7. Nuno Carvalho Figueiredo & Patrícia Pereira da Silva & Pedro Cerqueira, 2014. "The Renewables Influence on Market Splitting: the Iberian Spot Electricity Market," GEMF Working Papers 2014-14, GEMF, Faculty of Economics, University of Coimbra.
    8. 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.
    9. 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).
    10. Mauritzen, Johannes, 2012. "Dead Battery? Wind Power, the Spot Market, and Hydro Power Interaction in the Nordic Electricity Market," Working Paper Series 908, Research Institute of Industrial Economics.
    11. Figueiredo, Nuno Carvalho & Silva, Patrícia Pereira da & Cerqueira, Pedro A., 2016. "It is windy in Denmark: Does market integration suffer?," Energy, Elsevier, vol. 115(P2), pages 1385-1399.
    12. Mauritzen, Johannes, 2011. "Dead Battery? Wind Power, The Spot Market, and Hydro Power Interaction in the Nordic Electricity Market," Discussion Papers 2011/16, Norwegian School of Economics, Department of Business and Management Science.

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    More about this item

    Keywords

    Wind Power; Nordic Electricity Market;

    JEL classification:

    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General

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