Impact of Variable Renewables Through Market Coupling on Day-Ahead Prices in NO2 : A panel quantile approach
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- Master Thesis 
This thesis investigates the impact of European variable renewables on the distribution of electricity prices in Norway through market coupling. When examining the effect from variable renewables we assess day-ahead prices in the Norwegian bidding zone NO2 and variable renewable generation in Germany, Great Britain, Denmark, and the Netherlands. We exploit hourly data from October 2021 throughout 2022 and employ a panel quantile regression. A quantile approach enables us to estimate the variable renewables effect on various price quantiles while the panel structure allows us to control for market dynamics through hourly-specific effects. In the model, we also control for various other factors known to impact electricity prices. The variable of particular interest is the penetration of variable renewables, constructed by dividing the variable renewable generation by the total generation in each respective country. The results imply that an increasing penetration of variable renewables in all countries have a negative effect on day-ahead prices in NO2, suggesting that the merit-order effect occurs through market coupling. An increasing penetration of wind and PV generation in interconnected countries decreases domestic electricity prices. The result implies that the impact from variable renewables is strongest in the right-tail of the price distribution, indicating stronger impact during peak demand. Nonetheless, the result signals signs of transmission congestion which diminish the price contagion from the variable renewable penetration in the interconnected country, obstructing the merit-order effect originally seen through market coupling. The model is unable to capture this effect given a confidence of 95 percent. Hence, we cannot adequately conclude that this result is due to congestion.