Winds of Change: How Swedish Wind Power Generation is Impacting Electricity Prices

Sammanfattning: This study provides fresh evidence on the impact of wind power generation on Swedish electricity prices. Hourly observations from the Nord Pool electricity market dated January 1, 2019 to December 31, 2021 are used to investigate the relationship between wind power generation and electricity spot price level and volatility. A time series analysis is performed with the use of an integrated ARMAX-GARCHX model, which is optimized for the data set. The ARMAX models the electricity spot price level in terms of wind power generation, controlling for consumption, net exchange, and oil price. Similarly, the GARCHX models the electricity spot price volatility in terms of the selected explanatory variables. The results conclude that wind power generation significantly lowers the electricity spot price level, and increases the spot price volatility. Understanding how variable renewable energy sources impact electricity market conditions has important implications for the design of energy policy. Our findings add to the energy political debate by providing insight on how a drastic expansion of wind power in Sweden may impact electricity markets.