Renewable energy’s effect on bottlenecks in the electricity market : Analyzing the impact of the green transition and increased interconnectors abroad on price differences towards NO2

2023

The electricity sector in Europe needs a substantial transition towards an increased share

of renewable energy sources to reach the European Commission’s target for Europe to

be climate neutral by 2050. In this study, we explore the impact of the green transition

through increased use of renewable energy. Specifically, we focus on bottlenecks in the

electricity market between the NO2 price area in Norway and its interconnectors abroad

to Denmark (DK1), Germany (DE), the Netherlands (NL), and the United Kingdom

(UK). Further, this study is set to give an understanding of Europe’s evolving energy

landscape related to price fluctuations affected by interconnectors and a focus on more

renewable energy in response to climate change imperatives.

Using a combination of Ordinary Least Squares (OLS) and Pooled OLS regression models,

the study analyzes correlations between daily spot price differences, weather conditions,

and power generation data from 2020 to 2023. Further, we investigate the implications

of increasing the use of intermittent renewable energy sources, such as wind and solar,

in price areas abroad that NO2 has interconnectors with and the effect this has on price

differences. Before 2020, there have not been many bottlenecks between NO2 and abroad,

meaning few constraints on the flow of electricity in the power grid. Therefore, the demand

to expand capacity in the grid has not been substantial. With the increasing production

of energy from wind and solar sources, we see an immense increase in fluctuations in price

differences as a result of the increased exchange of power.

The findings in our regression results indicate that wind power has a significant correlation

with price difference and substantiates that weather has an effect on bottlenecks.

Intermittent production from renewable energy sources constitutes an increasingly larger

share of the power production mix among energy suppliers. Our findings show that using

intermittent renewable energy sources might contribute to more substantial problems

concerning bottlenecks and fluctuations in price difference. However, we also explore how

this can be balanced using dispatchable energy sources such as hydropower in Norway.