Wind Power and Electricity Price Dynamics : An Empirical Analysis on the Swedish Day-Ahead Market

Facing large-scale electrification, Swedish electricity markets are projected to undergo fundamental changes over the next decades. With climate protection goals in mind, wind-powered electricity will play a crucial role in supplying tomorrow’s electricity to Swedish households and industry. Using a GARCH framework, this analysis investigates the effect of wind power generation on the daily average spot prices faced by the four Swedish bidding areas SE1-SE4. The results of the study provide clear evidence for the presence of a merit order effect of wind power in all four Swedish bidding areas. Furthermore, the merit order effect was observed in the share of electricity demand met by wind generated power. Additionally, across all four bidding areas, the models suggest a small variance augmenting effect in connection with wind power. The results are in line with previous findings despite the comparatively high price volatility present in the dataset