Real-Time Pricing in the Nordic Power Markets

28 Pages Posted: 2 Dec 2010 Last revised: 27 Jan 2011

See all articles by Maria Kopsakangas-Savolainen

Maria Kopsakangas-Savolainen

Finnish Environment Institute; University of Oulu - Department of Economics, Accounting and Finance

Rauli Svento

University of Oulu - Department of Economics, Accounting and Finance

Date Written: November 30, 2010

Abstract

In this paper we study the potential effects of Real Time Pricing (RTP) of electricity to the need of long-run capacities in the Nordic power markets. A characteristic of the Nordic power market is the large variety of production technologies of which hydro and nuclear power are capacity constrained. We analyze the impact of RTP on the need for total, peak and midmerit capacities, on total demand, on the prices, on the peak demand hours and also on the welfare. We have also studied whether the results of RTP are sensitive to the simultaneous implementation of tradable emission permits. We find that RTP diminishes the need for total capacity even with inelastic demand. Also the price of the peak demand hour clearly diminishes as the share of the RTP customers increases or demand becomes more price elastic. We find that welfare effects of the implementation of RTP are positive. The results are sensitive whether we analyze the market with or without emission trade.

Keywords: Real Time Pricing, Nordic Power Markets, capacity investments

JEL Classification: C63, D24, L94, Q41

Suggested Citation

Kopsakangas-Savolainen, Maria and Svento, Rauli, Real-Time Pricing in the Nordic Power Markets (November 30, 2010). Available at SSRN: https://ssrn.com/abstract=1717722 or http://dx.doi.org/10.2139/ssrn.1717722

Maria Kopsakangas-Savolainen (Contact Author)

Finnish Environment Institute ( email )

PO Box 413
Oulu, 90014
Finland

University of Oulu - Department of Economics, Accounting and Finance ( email )

PO Box 4600
FIN-90014 University of Oulu
Finland

Rauli Svento

University of Oulu - Department of Economics, Accounting and Finance ( email )

PO Box 4600
FIN-90014 University of Oulu
Finland

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