The Impact of Wind Power Production on Electricity Price Volatility : A Time-Series Analysis

Abstract: This study investigates how increased wind power production (in MWh) in Sweden has affected electricity price volatility in the Nordic wholesale electricity exchange Nord Pool. The importance and growth of wind power have emerged in light of its low marginal costs of production and it being a renewable, zero-carbon electricity generation source. Previous studies have found that while increased wind power production generally lowers the average wholesale price of electricity, volatility tends to increase due to the intermittent character of wind power production. By using daily price and wind power data from the Nordic exchange market Nord Pool during the period 2015-2017, a GARCH model was used to investigate how wind power has affected price volatility. The results indicate that electricity price volatility increases in the long run when wind power production increases. The reasons behind this could be found in the inflexibility of baseload power production. However, the Swedish electric power system also benefits from a high degree of flexibility due to the presence of hydropower reservoirs.