Scandinavian Working Papers in Economics

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

No 2016/18: Electricity Prices, Large-Scale Renewable Integration, and Policy Implications

Evangelos Kyritsis (), Jonas Andersson () and Apostolos Serletis ()
Additional contact information
Evangelos Kyritsis: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Jonas Andersson: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Apostolos Serletis: Dept. of Economics, University of Calgary, Postal: University of Calgary , Department of Economics, Helleveien 30, Calgary, Alberta, T2N 1N4, Canada

Abstract: This paper investigates the effects of intermittent solar and wind power generation on electricity price formation in Germany. We use daily data from 2010 to 2015, a period with profound modifications in the German electricity market, the most notable being the rapid integration of photovoltaic and wind power sources, as well as the phasing out of nuclear energy. In the context of a GARCH-in-Mean model, we show that both solar and wind power Granger cause electricity prices, that solar power generation reduces the volatility of electricity prices by scaling down the use of peak-load power plants, and that wind power generation increases the volatility of electricity prices by challenging electricity market exibility.

Keywords: Intermittency; Large-scale integration; Merit-order effect; Volatility; GARCH-in-Mean model

JEL-codes: C22; Q41; Q42

35 pages, November 22, 2016

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