The impact of variable renewables on the distribution of hourly electricity prices and their variability: A panel approach

Kyriaki Tselika ()
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Kyriaki Tselika: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, https://www.nhh.no/en/employees/faculty/kyriaki-tselika/

No 2022/4, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: This paper investigates the impact of intermittent renewable generation on the distribution of electricity prices and their variability in Denmark and Germany. We exploit hourly data from 2015 to 2020 and employ a novel panel quantile approach - the Quantiles via moments (MMQR) method. The combination of hourly-specific effects and the quantile approach allow us to estimate the renewable sources effect on various price quantiles while controlling for market dynamics. The results suggest that the merit-order effect occurs in both countries, with wind and solar generation having diverse effects on the electricity price distribution. Thus, policy makers should consider this diversifying effect to develop efficient renewable support schemes. We also explore non-linearities by including different demand levels in our model and investigate price variability. The outcomes indicate that wind generation increases (decreases) the occurrence of price fluctuations for low demand (high demand) in both countries. Meanwhile, in Germany, solar power stabilizes price fluctuations for high demand levels, stronger than wind. Market risk information could be useful for organizations in recognizing beneficial investment opportunities or hedging strategies. We finally aggregate the hourly observations into daily and compare the estimation outcomes. Hourly-related features seem to affect the merit-order effect and its robustness, and a panel approach shall be considered when investigating electricity markets.

Keywords: Electricity prices; panel quantile regression; renewable sources; merit-order effect; price variability (search for similar items in EconPapers)
JEL-codes: Q20 Q40 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2022-02-02
New Economics Papers: this item is included in nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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