Effects of Hydrological Inflow on Electricity Prices

Abstract

This thesis investigates the impact of hydrological inflow on electricity pricing in Norway’s hydropower-dominated energy market, examining short-term and long-term effects from 2012 to 2023. Utilizing quantile regression models that span from the 10% to the 90% quantile, we control for various influences by incorporating known fundamental factors, including reservoirs and snow, soil and groundwater levels, and the capacity of subsea interconnectors.

Our results show a negative influence of inflow on electricity prices, although this effect varies across the price levels. The study also incorporates interaction terms to assess how inflow responsiveness fluctuates with market changes. The impact differs with variations in reservoir and snow reservoir levels. Additionally, the study notes altered impacts correlating with the increased capacity of subsea interconnectors. Interestingly, areas with unregulated hydropower show a greater sensitivity to short-term than long-term inflow. In contrast, regulated hydropower demonstrate opposite effects.

By highlighting the nuanced relationship between hydrological inflow and electricity prices, this study contributes valuable insights into Norway's energy market's operational and policy implications, with potential applicability to other hydro-dependent economies. The results underscore the importance of considering hydrological variables in managing and planning renewable energy resources, offering a foundation for future research on optimizing energy market stability and efficiency in the face of climatic and market variability.