Scandinavian Working Papers in Economics
CERE Working Papers,
CERE - the Center for Environmental and Resource Economics
No 2020:12: The Effects of Wind Power on Electricity Markets: An Evaluation Using the Swedish Electricity Market Data
Xiao Hu (), Jūratė Jaraitė () and Andrius Kažukauskas ()
Additional contact information
Xiao Hu: CERE - the Center for Environmental and Resource Economics
Jūratė Jaraitė: Faculty of Economics and Business Administration at Vilnius University, School of Business, Economics and Statistics at Umeå University and Center for Environmental and Resource Economics (CERE) at Umeå
Andrius Kažukauskas: Faculty of Economics and Business Administration at Vilnius University, School of Business, Economics and Statistics at Umeå University and Center for Environmental and Resource Economics (CERE) at Umeå
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
30 pages, May 26, 2020
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