How closely does electricity production follow price signals?

Abstract: This thesis investigates the relation between the day-ahead electricity market prices and the electricity production in the Nordic synchronous area of the European electric power system by looking into the market data ranging from 2015 to the current time. The increasing penetration of variable renewable energy sources, coupled with the deeper electrification in various sectors of the economy, has led to a higher volatility in the market, e.g. in the market prices. Since all power plant owners plan their production depending on prices, price forecasts, availability, it is necessary to better understand the relation between price signals and the production variations. Firstly, balancing contributions, considered as a suitable tool, are found unfit to apply to this research. Secondly, spectral analysis is used to highlight frequencies in the signals, leading to the determination of three time scales of variations: daily, two-weekly and yearly. It is used to define three timehorizons which are used to apply different mathematical tools on the market data. Thirdly, the correlation coefficient between a type of production and the day-ahead prices assesses the linearity of their respective variations. Lastly, the relative market value of the production gives insight into the , e.g. with regard to flexibility. Results of this research show that the correlation between the day-ahead prices and the production depends on the time-horizon, the production type, as well as the area. E.g., if SE2’s and SE1’s hydro production are highly correlated to prices in the daily and two-weekly patterns, the former has not enough storage to follow prices on the yearly horizon, while the latter can, due to its bigger reservoirs. Results also show that wind power is one of the drivers of the day-ahead prices, especially in the two-weekly time horizon. The increasing share of wind power will hence lead in more price variations as well as lower average price levels.. This study aims to provide insights to the plant owners with flexibility possibility on how to face those future challenges.