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Now or Later? Trading Wind Power Closer to Real Time And How Poorly Designed Subsidies Lead to Higher Balancing Costs

Abstract:
Simulation studies have pointed to the advantages of trading closer to real-time with large amounts of wind power. Using Danish data, I show that, as expected, shortfalls increase the probability of trade on the short-term market, Elbas. But in the period studied between 2010 and 2012 surpluses are shown to decrease the probability of trade. This unexpected result is likely explained by wind power policies that discourage trading on Elbas and lead to unnecessarily high balancing costs. I use a rolling-windows regression to support this claim.

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Keywords: Wind power, Electricity markets, Subsidy policy

DOI: 10.5547/01956574.36.4.jmau

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Published in Volume 36, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.