Effects of renewables on the stylized facts of electricity prices

Many countries around the world have increased their renewable installed capacity due to a greater awareness of climate concerns. Under this new framework, with renewables being among the main generation sources, the literature warns of a dramatic change in price behaviour. Some of the most commonly claimed effects of having a significant proportion of renewable generating sources in the total electricity production mix include: (i) a systematic decrease in overall wholesale market prices, (ii) a higher occurrence of price jumps, and (iii) a significant increase in price volatility. The goal of the present study is to test whether these changes in price behaviour have actually come about. To do so, we focus on the Spanish day-ahead electricity market as a paradigmatic example. In line with the literature, it is found a statistically negative relationship between the renewable generation share and the day-ahead market marginal prices. As well, we have obtained statistical confirmation of the fact that renewables generation share volatility is transferred to price volatility, though similarly to other generation technologies. Finally, in contrast to the general belief that the introduction of renewable generation would give rise to extreme (positive) prices, according to our results, increases in renewables generation share reduce the probability of upward jumps in prices. The results obtained are of interest for portfolio managers, practitioners and regulators. (c) 2015 Elsevier Ltd. All rights reserved.