| dc.description.abstract | Challenges in the power balance (Norwegian: effektbalanse) occur during peak load hours in the morning (07-11) and in the afternoon (17-19) during the coldest winter days (Thema Consulting, 2022). Hydropower offers significant flexibility in adapting to electricity market conditions, such as the power balance, but the introduction of the Norwegian high-price contribution (Norwegian: høyprisbidraget), or HPC for short, potentially complicates this flexibility.
The HPC is a 23% tax on the portion of the spot price above 0.7 NOK/kWh. The tax took effect for large hydropower producers on the same day it was announced, 28 September 2022. By being levied on only high-price hours, the tax reduces the relative profitability of producing during these hours. Given the uncertainty of future prices, this could change the allocation of hydropower production over time. Therefore, the HPC could lead to reduced electricity production in the hours with challenges to the power balance.
This study investigates the impacts of the HPC on the daily allocation of reservoir hydropower production. It specifically aims to answer the research question, “How does the Norwegian high price contribution affect the allocation of reservoir hydropower production throughout the day?” Given the modest size of the HPC and its monotonic characteristics, the hypothesis suggests a relatively small impact on production allocation.
The research utilises hourly data on production plans from the Norwegian Energy Regulatory Authority (RME), controlling for reservoir- and temperature levels, maximum installed capacity, futures electricity prices and European gas and -carbon prices. The study obtains estimates on hourly production using a standard Tobit model, with interaction terms between hourly dummies and the HPC.
The results indicate lower hourly allocation for daytime hours after the HPC came into effect compared to before it was introduced. The results align with our hypothesis and indicate that the allocation of hydropower production over different hours of the day is altered as an effect of the HPC. The result is useful for policymakers in understanding the implications of fiscal measures on energy production. This thesis contributes to the field by taking an econometric approach to the operational dynamics of hydropower under distributional tax measures, a topic with sparse previous literature. | |
