The market for regulating power in Denmark and possible profitability for Norwegian hydroelectricity producers

Abstract

The EU has decided upon a common goal that 20% of its energy should come from renewable power sources within the year 2020. Producing this energy is not considered difficult by itself, but the resources for production often are stochastic in nature, such as winds and solar power. Balancing the production to demand represents a challenge, as it is necessary for energy production and consumption to balance at all times. Norway’s extensive hydro power resources are a possible source for supplying regulating power. The focus of this thesis is to find out more about what happens to the demand for regulating power as the share of wind power increases in a system, represented by Denmark, and if such an increase in demand represents an opportunity for profit for Norwegian hydropower producers. Data on upwards and downwards regulation, and wind power production has been collected and analysed using Newey-West regressions. The analysis on demanded quantities was based on hourly data from the period of January 2006 to December 2012, while the analyses on prices are based on data from the two years 2011 and 2012. The results are inconclusive, and do not solely support the hypothesis of increased share of wind power leading to increased demand for regulating power. The share of wind power in the Danish power system does to a very little degree explain the demand for regulating power. The analysis on prices points towards regulating power prices declining when introducing wind power. One might from this conclude that the expectations towards future profitability in flexible electricity might be somewhat unrealistic.