Wind power production and electricity price volatility : an empirical study of the effect of increased wind power production on electricity price volatility in Norway

Abstract

As renewable energy sources are gaining increasing importance on the global electricity scene, the importance of understanding their implications increases accordingly. This thesis aims to increase electricity market participants’ understanding of how the introduction of intermittent renewables in the energy mix will affect electricity price dynamics. Specifically, we examine whether wind power production has an effect on electricity price volatility in Norway. By doing so, we provide research on an unexamined market, which is particularly interesting due to its hydro-reliance and wind power potential. In our analysis, based on electricity price data from 2013 to 2019, we have found that there is a significant positive relationship between wind power production and intraweekly electricity price volatility in Norway. This finding has implications for Norwegian electricity consumers and producers, as increased price volatility creates both challenges and opportunities. Increased price volatility encourages investment in flexible supply and consumption, and we argue that such an investment may offset the disadvantages of the uncertainty associated with price fluctuations. In the analysis of wind power’s effect on intra-daily volatility, however, we do not find an equivalent significance. Thus this finding provides interesting opportunities for future research as global investments in wind power continue to increase.