Many electricity markets are experiencing profound changes due to the large-scale deployment of renewable energy. This paper analyzes the effect of wind and hydro power on wholesale electricity prices. We focus on the Spanish market due to the high penetration of wind and hydro, and also the availability of data on water stored in Spanish dams. We estimate the impact of wind generation and hydro availability on the electricity price level and volatility through an ARX-GARCHX model. The results show that these two different renewables have different impacts on electricity prices: intermittent wind generation increases the price volatility, while dispatchable hydro reduces it. The results are consistent with hydropower plants behaving strategically and, given their zero marginal cost, dampening the otherwise higher price increases due to wind intermittency. Therefore, hydropower complements other intermittent renewables, not only operationally, but also economically.
|Title of host publication||2017 14th International Conference on the European Energy Market, EEM 2017|
|Publisher||IEEE Computer Society|
|Publication status||Published - 14 Jul 2017|
|Event||14th International Conference on the European Energy Market, EEM 2017 - Dresden, Germany|
Duration: 6 Jun 2017 → 9 Jun 2017
|Conference||14th International Conference on the European Energy Market, EEM 2017|
|Period||6/06/17 → 9/06/17|