January 16, 2011

What happens when it's Windy in Denmark? An Empirical Analysis of Wind Power on Price Volatility in the Nordic Electricity Market

by Johannes Mauritzen

- This paper attempts to empirically test the effect that wind power production in Denmark has on volatility of the nordpool wholesale electricity prices. The main result is that wind power tends to significantly reduce intraday volatility but increases volatility over larger time windows. The negative elasticity for intraday volatility is likely due to a larger-in-magnitude price effect of wind power on peak hours then off-peak hours. I suggest that this in turn is due to a steeper supply schedule at peakloads. The positive elasticities in the wider time windows can be intuitively explained by the greater variability of the supply when large amounts of wind power are present. These finding have ramifications for investment in power generation, balancing as well as transmission capacity.

Johannes M. (2010). "What happens when it's Windy in Denmark? An Empirical Analysis of Wind Power on Price Volatility in the Nordic Electricity Market." Discussion Papers, Department of Finance and Management Science, Norwegian School of Economics and Business Administration (NHH) No. 2010/18, Dec 2010.