Weather and market specificities in the regional transmission of renewable energy price effects

• Published in: Energy (Oxford) 2016-11, Vol.114, p.188-200
• Main Authors: Figueiredo, Nuno Carvalho, Silva, Patrícia Pereira da, Bunn, Derek
• Format: Article
• Language: English
• Subjects: Electricity; Market integration; Prices; Weather; Wind energy
• ISSN: 0360-5442
• DOI: 10.1016/j.energy.2016.07.157

This study is motivated by the observation that the effects of renewable energy output variations across several integrated power markets are likely to be complicated by price arbitrage and weather dynamics. Wind in particular has supply side effects when associated with substantial generating facilities, but also demand side influences when associated with extreme weather conditions. To unravel these effects, daily electricity prices and the weather variables wind, temperature and their interaction (wind chill) in the Central-West Europe coupled market were analysed from 2007 to the end of 2014 by means of vector autoregressions. The spillover effects were found to be quite subtle. Despite efficient price arbitrage, it is not the case that daily wind output shocks diffuse uniformly across all markets, or that the largest generator of wind energy creates the most significant spillovers or that high wind conditions necessarily lead to lower prices. Market specificities matter and are important for operational prediction and weather risk hedging. •Renewables effect across integrated power markets.•Effects of weather variables on supply and demand sides.•VAR analysis in Central-West Europe: wind, temperature and wind chill.•Wind output shocks do not diffuse uniformly across integrated markets.•Large wind energy markets do not necessarily create significant spillovers.