Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2011/16: Dead Battery? Wind Power, The Spot Market, and Hydro Power Interaction in the Nordic Electricity Market

Johannes Mauritzen ()
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Johannes Mauritzen: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway

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.

Keywords: Wind Power; Hydro Power; Nordic Electricity Market; Empirical

JEL-codes: Q00

34 pages, September 29, 2011

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