The impact of wind and solar power generation on the level and volatility of wholesale electricity prices in Greece

We investigate the impact of wind and solar power generation on the level and volatility of wholesale electricity prices in the Greek electricity market from August 2012 to December 2018. In the context of a GARCH-in-Mean model the empirical findings suggest the existence of the merit-order effect which is stronger in the case of wind power. Controlling for regulatory mechanisms that may affect price volatility, we find that while overall re-newables have decreased price volatility, wind power tends to increase it and solar power tends to decrease it. Furthermore, during peak hours, wind and solar power generation tend to decrease price volatility, supporting the hypothesis that renewables' output reduces the volatility of wholesale electricity prices when it is positively correlated with the electricity load. Finally, we find that the increase in the price-cap of the Greek wholesale electricity market was associated with a reduction in the volatility of wholesale electricity prices. This finding highlights the importance of the market structure and the degree of vertical integration of participants in liberalized electricity markets, which determines their behavior while also affecting market price volatility.

Automated summary

This study investigates the impact of wind and solar power generation on wholesale electricity prices in the Greek market. The empirical findings suggest the existence of a merit-order effect, with wind power having a stronger effect. Controlling for regulatory mechanisms, it is found that renewable energy reduces price volatility overall, but wind power tends to increase it while solar power tends to decrease it. Furthermore, during peak hours, both wind and solar power generation reduce price volatility, supporting the hypothesis that renewables' output reduces wholesale electricity price volatility when positively correlated with electricity load. Additionally, an increase in the price-cap of the Greek wholesale electricity market is associated with a reduction in price volatility. This finding emphasizes the importance of market structure and participants' vertical integration in determining behavior and market price volatility.