The impact of the Nord Pool Swedish electricity price area change on Danish DK2 area prices

by Mikko Lauerma

Institution: University of Helsinki
Year: 2015
Keywords: Taloustiede
Record ID: 1140152
Full text PDF: http://hdl.handle.net/10138/153745


This study analyses the impact of the change in the Nord Pool electricity price area structure in Sweden that took place on November 1st 2011. The reasoning for the change was imperfect operation of the Nord Pool Spot market due to limitations on the internal electricity transmission lines in Sweden that forced the Swedish national power grid operator to artificially limit electricity exports to the Danish DK2 price area. The main focus of this study is on measuring the change in electricity prices in the DK2 area as a result of this structural change. Electricity price models in existing literature can be divided into two main categories, univariate and multivariate models. Univariate models aim to model the behaviour of electricity prices as stochastic processes without using other factors as inputs. Multivariate models include other explanatory factors, such as fuel prices, weather and renewable power production volumes. For this study, a multivariate model allows controlling for the impact of other factors on the electricity prices in order to determine the share of the impact resulting from the structural change. The impact of the structural change is measured using a linear regression model with the electricity price as a dependent variable and the structural change modelled as a dummy variable. Both the absolute area prices and the price area differences between the area price and Nord Pool system price are used as dependent variables. Other explanatory variables include electricity consumption, fuel and emission prices, hydrobalance, nuclear and wind power production, prices in the adjoining German EEX market and temperatures. In addition, a linear trend variable is tested for inclusion in the model. The models are estimated on hourly and daily data, with the estimations based on daily average data yielding higher R-squared values due to lower price volatility. The models with the absolute prices as the dependent variable did not find statistically significant coefficients for the dummy variable representing the structural change, but the models with the electricity price area differences as the dependent variable did. Estimates of the decrease in the Danish DK2 area prices range from -4,5 €/MWh to -6 €/MWh depending on the model specification used. Estimating the change using the electricity price area differences for the Malmö area in Southern Sweden as the dependent variable. These models using the same explanatory variables as for the DK2 prices show an increase of 1,8 €/MWh to 3,3 €/MWh for the Malmö area prices differences, which is a similar result to those found in previous studies. Based on the analysis, the change in the Swedish area price structure has decreased the electricity prices in the DK2 area compared to what would have been observed if the old area price structure had remained. Tutkimuksessa analysoidaan Nord Pool –sähkömarkkinan hinta-aluerakenteessa Ruotsissa 1.11.2011 tapahtuneen muutoksen vaikutuksia sähkön hintoihin. Hinta-aluemuutoksen taustalla oli Nord Poolin…