Electricity price volatility: its evolution and drivers
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School of Business |
Master's thesis
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Authors
Date
2017
Department
Major/Subject
Mcode
Degree programme
Economics
Language
en
Pages
55
Series
Abstract
The Nordic electricity market offers an opportunity to study how intermittently available technologies are shaping up the future of the electricity markets. This work presents an empirical research on how the wind-produced energy affects the market and what challenges does wind power brings into it. The main proposition is that the wind power output makes the electricity prices less predictable and increases the allocative inefficiencies that already exist in the electricity market. In particular, the study is aimed at estimating the effect of wind power generation on the electricity price volatility in the Nordic electricity market. Additionally, the gap between the mean system price and the mean bidding area prices is described and analysed. Since most standard financial contracts traded in the Nordic countries use the system price as reference price, there is a need to investigate what factors affect the gap between the fictitious clearing price for the whole Nordic region and the actual electricity price at the moment of energy purchase. For conducting the empirical part of the analysis, the linear regression equations are constructed and used. The main objective of this thesis is to capture the wind power effect after controlling for seasonality, trend and exogenous supply shifters. This work also provides a starting point for discussions about the possibility of a new metering technology introduction (such as Smart Grid technology) to the Nordic electricity market.Description
Thesis advisor
Liski, MattiKeywords
wind energy, system price, electricity price volatility, Nordic electricity market, Nord Pool