The Effects of Wind Power on Electricity Markets: An Evaluation Using the Swedish Electricity Market Data

30 Pages Posted: 19 Jun 2020

See all articles by Xiao Hu

Xiao Hu

Swedish University of Agricultural Sciences (SLU) - Center for Environmental and Resource Economics (CERE)

Jurate Jaraite

Vilnius University

Andrius Kažukauskas

Swedish University of Agricultural Sciences (SLU) - Center for Environmental and Resource Economics (CERE)

Date Written: May 26, 2020

Abstract

We investigate the process of electricity price formation in the Swedish intraday market, given a large share of wind power in the Swedish electricity system. According to Karanfil and Li’s (2017) approach, if the intraday market is efficient and liquid, with large shares of intermittent electricity in the entire electricity system, the intraday price should send signals based on scarcity pricing for balancing power. Based on this theory, we analyze the Swedish electricity market data for the period 2015–2018 and find that the Swedish intraday market, despite its small trading volumes, is functioning properly. In particular, our results show that intraday price premia respond in an expected way to wind power forecast errors and other imbalances resulting from either supply or demand sides of the electricity market. The results of wind power forecast errors hold for central and southern Sweden, but not for northern Sweden where the share of wind power production is still very small. In addition, we find no effect of unplanned nuclear power plant outages on intraday price premia.

Keywords: Day-ahead market, electricity, forecast errors, intraday market, Sweden, wind power

JEL Classification: P18, Q40, Q41,Q42

Suggested Citation

Hu, Xiao and Jaraite, Jurate and Kažukauskas, Andrius, The Effects of Wind Power on Electricity Markets: An Evaluation Using the Swedish Electricity Market Data (May 26, 2020). Available at SSRN: https://ssrn.com/abstract=3610800 or http://dx.doi.org/10.2139/ssrn.3610800

Xiao Hu (Contact Author)

Swedish University of Agricultural Sciences (SLU) - Center for Environmental and Resource Economics (CERE) ( email )

Almas Allé 10
Umeå, 750 07
Sweden

Jurate Jaraite

Vilnius University ( email )

Lithuania

Andrius Kažukauskas

Swedish University of Agricultural Sciences (SLU) - Center for Environmental and Resource Economics (CERE) ( email )

Almas Allé 10
Umeå, 750 07
Sweden

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