WIND UP WITH CONTINUOUS INTRADAY ELECTRICITY MARKETS? THE INTEGRATION OF LARGE-SHARE WIND POWER GENERATION IN DENMARK

27-08-2015 -  Fatih KARANFIL and Yuanjing LI

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Keywords: Intraday market; Wind power; VAR; Causality; Impulse response function

JEL codes: C22; Q41; Q42


ABSTRACT
This paper suggests an innovative idea to examine the functionality of an electricity intraday market by testing causality among its fundamental components. As fluctuations of poorly predicted wind power generation are challenging the stability of the current electricity system, an intraday market design can play an important role in managing wind forecast errors. Using Danish and Nordic data, it investigates the main drivers of the price difference between the intraday and day-ahead markets, and causality between wind forecast errors and their counterparts. Our results show that the wind and conventional generation forecast errors significantly cause the intraday price to differ from the day-ahead price, and that the relative intraday price decreases with the unexpected amount of wind generation. Cross-border electricity exchanges are found to be important to handle wind forecast errors. Additionally, some zonal differences with respect to both causality and impulse responses are detected. This paper provides the first evidence on the persuasive functioning of the intraday market in the case of Denmark, whereby intermittent production deviations are effectively reduced, and wind forecast errors are jointly handled through the responses from demand, conventional generation, and intraday international electricity trade.

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