Wind power is becoming a major source of electricity generation around the world. Integrating large amounts of wind power in a market based electricity system where prices are set based on supply and demand can however introduce challenges since wind power cannot be scheduled like traditional electricity generation.
Most studies that are based on simulation have predicted that large amounts of wind power will increase price variation in electricity markets. Using data from Denmark and the Nordic electricity market, Mauritzen however shows that in the short run, wind power has the effect of reducing daily price variation.
He also shows that Denmark is dependent on the hydro power of its Nordic neighbors as a backup and storage for its wind power. He finds that as much as 40% of wind power is exported and stored in the form of water in Norwegian hydro power magazines. He also finds that wind power has a slight but statistically significant negative effect on prices in Norway, likely due to a slackening of hydro power producers supply constraints.
In Denmark, government policy and subsidies have played a dominant role in the development of wind power. As the wind power industry matured, the government introduced policies meant to encourage the scrapping of older, poorly placed turbines to make way for newer turbines.
Using duration models, he finds that while the policies were undoubtedly successful in encouraging the scrapping of old turbines, they tended to have a higher effect on scrapping turbines located on land with good wind conditions. This can be explained by noting an interaction with an opportunity cost that comes from scarce land resources and a high rate of technological change.