Final Report Summary - AADAMS (Auction and Day-Ahead Markets Spikes)
The imperatives of moving towards a low carbon power generation sector with substantial amounts of renewable energy has modified market mechanisms and created new needs for understanding electricity price risks. The dynamics of electricity price formation are radically different as a consequence and are likely to undergo further fundamental changes. Whilst negative wholesale prices are appearing and the generating companies are reporting major asset impairments, retail prices continue to rise and consumer attitudes are hardening against the industry. Within this complicated and contradictory set of issues, the research undertaken in this project has sought to provide both methodological and policy insights. After having compiled and managed a rich database at hourly frequency, we show the new nature of electricity price dynamics focusing upon the intermittent characteristics of new technologies (as wind and photovoltaic generation). We have detected price changes and investigated appropriate short term power price modelling techniques for the occurrence of abnormal price excursions, providing evidence that “negative” prices induce non—normality and more importantly time—varying distributional shapes. Additionally, we propose the modelling of higher sample moments by generalized additive models, showing the dependence of skewness and kurtosis from fundamental drivers.
Therefore, we show that the stochastic nature of intermittent generation poses a new set of distributional properties for the power price risks. These results are based on the German market, which is leading the trend in these effects of renewable generation, but can be easily generalized to many other markets which are already showing the same influences. As consequence, AaDAMS’ methodology and findings represent an important tool for market operators and energy regulators to measure the implications of increasing renewable energy supplies on wholesale electricity prices.
These negative prices signify a lack of investment in flexible generation and more importantly an absence of market coupling. For instance, in case of low or negative prices in Germany, the other interconnected markets (as France, Denmark and Sweden, among others) will import German electricity until the cross-border capacity is fully used or prices converge.
Additionally, regulatory practices adopted worldwide in both the electricity and gas sectors have been explored. It has been shown that there exists a form of implicit common direction representing a potential trans-governmental network for energy policy able to affect the adoption of “best practices” even accounting for dissimilarities across countries. Some evidence of integration, (anticipatory) adaptation and Europeanization is also provided.
Therefore, we show that the stochastic nature of intermittent generation poses a new set of distributional properties for the power price risks. These results are based on the German market, which is leading the trend in these effects of renewable generation, but can be easily generalized to many other markets which are already showing the same influences. As consequence, AaDAMS’ methodology and findings represent an important tool for market operators and energy regulators to measure the implications of increasing renewable energy supplies on wholesale electricity prices.
These negative prices signify a lack of investment in flexible generation and more importantly an absence of market coupling. For instance, in case of low or negative prices in Germany, the other interconnected markets (as France, Denmark and Sweden, among others) will import German electricity until the cross-border capacity is fully used or prices converge.
Additionally, regulatory practices adopted worldwide in both the electricity and gas sectors have been explored. It has been shown that there exists a form of implicit common direction representing a potential trans-governmental network for energy policy able to affect the adoption of “best practices” even accounting for dissimilarities across countries. Some evidence of integration, (anticipatory) adaptation and Europeanization is also provided.