Dead Battery? Wind Power, The Spot Market, and Hydro Power Interaction in the Nordic Electricity Market

Abstract:     
It is well established within both the economics and power system engineering literature that hydro power can act as a complement to large amounts of intermittent energy. In particular, hydro power can act as a "battery" where large amounts of wind power are installed. This paper attempts to extend that literature by describing the effects of cross-border wind and hydro power interaction in a day-ahead "spot" market. I use simple econometric distributed lag models with data from the Nordic electricity market and a sample of Norwegian hydro power plants with water storage magazines. I suggest that wind power mainly affects prices in the hydro power area by way of shifting the shadow value of water. The empirical results support this view.

Number of Pages in PDF File: 35

Keywords: Wind Power, Hydro Power, Nordic Electricity Market

JEL Classification: Q00

working papers series