Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 969: Now or Later? Trading Wind Power Closer to Real-time and How Poorly Designed Subsidies Lead to Higher Balancing Costs

Johannes Mauritzen ()
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Johannes Mauritzen: Research Institute of Industrial Economics (IFN), Postal: and Norwegian School of Economics, Bergen, Norway

Abstract: An important challenge facing many deregulated electricity markets is dealing with the increasing penetration of intermittent generation. Simulation studies have pointed to the advantages of trading closer to real-time with large amounts of intermittent generation. Using Danish data, I show that, as expected, shortfalls increase the probability of trade on the shortterm market. But in the period studied between 2010 and 2012 surpluses are shown to decrease the probability of trade. This unexpected result is likely explained by wind power policies that discourages trading on Elbas and leads to unnecessarily high balancing costs. I use a rolling-windows regression to support this claim.

Keywords: Wind power; Short-term markets; Forecasting error

JEL-codes: Q42; Q48

23 pages, July 1, 2013

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