The impact of wind generation on the mean and volatility of electricity prices in Portugal

Abstract

This paper analyzes the impact of wind power generation on the mean and variance of electricity wholesale spot prices in Portugal. The Portuguese market is a natural setting to measure the effect of intermittent renewable generation on electricity prices, as the share of wind in total load demand is one of the largest in the world. Using daily data from 2007 to 2014, we estimate an ARX-EGARCHX model where wind generation and total load demand enter as exogenous explanatory variables for the electricity price. The results show that wind generation reduces the average price level, while it increases the price volatility. Both the mean and volatility effects are substantially stronger for day-time peak prices than for night-time base-load prices.